>> the federal open market committee decided to take another step reducing the degree of policy restraint by lowering our policy interest rate by a quarter of a percentage point. >> even with a 25 basis point cut they maintain that level of restriction. >> i think they did the right thing. i am pleasantly surprised they went to two cuts next year. >> we are not seeing a meaningful dialing back of policy. >> they are signaling a pause but by march the forecast may look different. >> this is "bloomberg surveillance" with jonathan ferro, lisa abramowicz, and annmarie hordern. jonathan: have you recovered

from yesterday yet? live from new york city for our audience worldwide, good morning. bloomberg surveillance starts right's now. coming into thursday looking to trying to forget wednesday. the biggest one-day loss since august, the worst fed day for equities going back 20 years. that is 13 straight days of negative breath. lisa: negative for all of the wrong reasons with some of the high flyers catching down to the underperformers. there is a larger question. why such a huge reaction to a press conference that on the margins was largely in line with expectations? it was more hawkish than people previously thought but this was a seismic shift. the fed put is not there anymore. this is a flipping and flopping fed. the degree of uncertainty took the uncertainty in the lack of risk-taking to a new level. jonathan: i'm not sure who was

more confused, chairman powell or the people listening. citi, unexpectedly hawkish, bank of america, unabashedly hawkish. steven englander with a question, if you're going to be so hawkish, why bother cutting? lisa: this was at the top of my notes this morning. he was asked that question and the answer was unsatisfying to markets. people do not get a sense of what the barometer was and how much this hinged on the expectations of next year. when he said some members just casually or theoretically penciled in some assumptions based on what the trump administration would do indicate to some people this would be a fed that assumed an inflationary impulse, respondent according to that assumption, and cannot even get behind the curve when it comes to weakness incoming. rbc capital talking about that. annmarie: typically -- jonathan:

typically frustrated by fed speak. we all have the same expectation going into news conference. we looked at the forecast, take cpi, they had to push that higher. the median dot goes lower. is that the data or trump? then we started to reflect on november's meeting. that in the news conference this time around some people assume, some people speculate, and some people cast. the question -- and some people gas. the question i have is which ones did that in which did not? lisa: how splintered is this fomc? chair powell has done a good job trying to keep the sense of unity. that broke down this time in a big way. not only did we get four dissents including three from nonvoting members but there was a sense he was struggling to make sense of the very non-consensus on the committee.

i want to understand who holds the keys to what happens next? who has the model the market can hook their teeth into? jonathan: where you think they are now? q1 worry about inflation, turns out to be a head fake. q3 worried about unemployment. write about the labor market. all of a sudden it feels like they have shifted back to inflation going into the new year. lisa: i don't think there is a consensus. that is why i think jay powell gave a very confusing speech that did not answer the question of why would you be wrenchingly up expectation -- larger be ratcheting up explain -- ratcheting up expectations for inflation -- this did not make sense but he was contending with the fact people were using a different model and questioning the data and there is this real concern on the fomc. why has inflation continue to surprise to the upside despite rates as high as they have been? jonathan: 100 basis points of

cuts across the three meetings. the recalibration phase is over. equities up .4% on the s&p 500. yesterday on the two-year and the 10 a double-digit move higher. yields up again by a single basis point. these are levels we have not seen since may. on a 10 year 4.5241. coming up we catch up with jim bianco of bianco research. bloomberg's tyler kendall as the stopgap funding bill collapses in washington. we catch up with drew matus of metlife on whether the fed can cut at all. the s&p 500 coming off its biggest one-day loss since august, the fed delivering a rate cut but dialing back expectation for cuts next year. jim bianco writing cutting the rates and leaving the door open to more is inviting higher inflation expectations and that is what the market is reacting to. we have a lot to get through.

your early reaction to yesterday's news conference. jim: you have to see it as a continuation of what we have seen since september. when the fed cut in september we were at 360 on the 10-year note and yields have been going higher. chairman powell has been asked and has not answered the question. then you come to yesterday's meeting, which we referred to as a hawkish cut. he made a very good case to raids -- a very good case to raise rates yesterday. the market has been worried about inflation and has been rejecting these moves by having yields go up and up on the long end of the curve because the economy is growing at potential. we have massive stimulus with the trump administration. monetary easing is unnecessary. all it will do is raise inflation expectations. every time they cut or talk about cutting you see higher long-term yields.

jonathan: is the next move a cut or a hike? jim: it should be no move even though chairman powell talked about a pause. it probably should be a hike. if we are talking about where neutral is, where is the rate to does not restrain or stimulate the economy, you can make that case we arrived at eight yesterday and the amount of restraint as chairman powell calls it does not exist. therefore the next move should be a hike but that will be intensely political. president wants to fire jay powell. president trump would go crazy if he saw the fed raise rates so they are trying to thread this needle from a political standpoint and they are coming up with an answer that is satisfying nobody. lisa: do you have a clear sense -- i know you gave a reason for why the market responded the way it did. how much do you think it has to do with the idea that there is

concern about stickiness of inflation and how much is it the flipping and the flopping and the lack of direction, the lack of understanding. what models are driving further fit decisions? jim: you are right that it is a flipping and a flopping. we are not sure where they are going. in the summer we got worried about the unemployment rate. that was the basis of the jackson hole speech. i think that was driven by the psalm rule getting triggered and that scared the fed and got us to 50 basis points. right after that the labor market rebounded and now we are back to inflation. there is no real consensus. add to that there were potentially four dissenters at this meeting, although officially there has only been one because four of them listed their 2024 dots being unchanged and this is a fed that is probably deeply divided, that

does not have a clear idea among themselves what they should be doing next, and when chairman powell tries to tell us your is the policy, there is no policy, there is just questions and to sent all over the place and that is showing up in the market. lisa: in some ways the fed put has been taken away, the comfort that at some point the default will be the recalibration to lower rates because it seems like they are very close to that neutral rate. i wonder going forward how much this is a fed that welcomes the weakness we saw yesterday in the market and welcome some of the selloff that takes pockets of froth down a notch. jim: i think they probably do welcome the idea that these frothy markets, especially in the more speculative markets like crypto have been worrisome for them and they would like to see them pull down. i don't think they like the idea that the frothiness is coming away because everybody is

screaming they made a policy error and that is why the frothiness is coming away. in the long run they would probably like that. that puts them at odds with incoming president trump. he views success of his administration by rising stock prices and the fed is saying at least we got stock prices down and some of the froth out of the market. it will be a very tumultuous 2025. jonathan: neil dutta said immediately after the news conference that this fed is on a collision course with the incoming administration. how do you think that plays out through the next 12 months? jim: it is going to play out not well at all. i am going to take scott bessent , the incoming treasury at his word that there is probably going to be a shadow fed. that is the idea that they will probably nominate kevin warsh early, like this summer, so we will have a fed chairman, a future fed chairman, and two

people to listen to and that will add to the confusion as well. this is not going to be something where they will clash with the administration. it will be open warfare and we will have probably a potentially future fed chairman sit there and question with the current chairman is doing. jonathan: that will not be music to the ears of people in brazil and japan. i mean policymakers. dollar-yen briefly through 157. in brazil they have fiscal issues. these issues do not help them. there are certain places in financial markets around the world where if they feel stretched. we had someone come on the program yesterday, julian emanuel, and he talked about the peak in the u.s. dollar being important to markets. how much oxygen is left the u.s. dollar? how much more stretch can this get? jim: the one thing i've learned

about currencies is they can go a lot farther than people think. as long as u.s. rates continue higher on the back of the fed not dealing with the inflation problem or fostering it by continuing to talk about cutting rates when it is not necessary, higher interest rates in the u.s. will continue to foster a higher dollar. a higher dollar means lower emerging-market currencies which means lower develop currencies like the yen and puts more and more pressure on them. look at what is happening in the global economy ex the the u.s. countries like germany and china and japan already struggling. germany might be in recession. japan might be in recession. china might have some of the lowest growth we have seen. the u.s. is humming along great but the problem is as the u.s. comes along and gets higher rates it sucks the dollar in higher and puts the rest of the world under further pressure. lisa: putting this altogether,

the rest of the world and further pressure, the idea that a stronger dollar will inhibit exports from the u.s., potentially the growth in certain areas. did this meeting and the reaction to it by the federal reserve and the markets increase the chance of some sort of negative growth stock next year despite some of the incoming policies? jim: it can. if you go back and you look at recent history, six years ago today was the day jay powell had another press conference where there was a very bad reaction in the market when he announced qt and it was going to be like watching paint dry in the market thought it was not going to be like watching paint dry and there was a very toxic reaction. two weeks later we got the powell pivot when he went to atlanta and basically pulled a piece of paper out of his pocket and said those policies are weeks ago and we will completely reverse them. we see something like that in the next couple of weeks. there is a precedent for it that he changes the policy.

if he doesn't change the policy and they continue to talk about weakness and worry about the labor market that they might have to cut rates even more next year in the face of raising inflation expectations, i think we will see a rocky ride in the markets. jonathan: looking forward to covering this with you. thanks for everything in 2024. we will see you in early 2025. the year-to-date moves in foreign-exchange and pinpointing was developing in emerging markets, not just over the past week but much of this year. moves of more than 20% against the brazilian currency. moves of 21% against the argentinian currency. moves of close to 17% against the mexican peso. that is painful for those countries. lisa: and it could alter and inhibit how much they could drop rates to stimulate their economies. if they see further depreciation of their currencies, when they import any kind of dollar-based asset that is going to be an

inherent inflationary force and it creates a spiral for a lot of these economies. jonathan: dxy soccer on the session. 107.90. with an update let's get dear bloomberg brief. yahaira: house majority leader steve scalise says the stopgap funding measure released tuesday is dead. this announcement comes after president-elect donald trump came out against it and threaten to oust fellow republicans who do not meet his demands. that includes raising the debt limit along with the legislation. if lawmakers cannot reach a new agreement the government could shut down friday night at midnight. meanwhile mike braun shares are plunging, down 15% in the free market -- in the premarket. they announced earnings and revenue guidance that missed estimates. while orders remain strong for components used for artificial intelligence, as it has not seen

a pickup in demand for makers of phones and pcs, two markets that make up the majority of its chip volume. the micron ceo says he expects a return to growth in the second half of the fiscal year. at&t and sweet green are the latest companies telling employees to come in to the office more often next year. the telecom giant will require corporate employees to be in the office five days a week while the salad chain is moving to four days a week for the support staff who do not work at the restaurants. employees in both companie currently go into the office about three days a week. must be nice. jonathan: i feel the same way. every time i hear the stories i think the same thing. where they been for the last 12 months? lisa: at the same time have you seen the studies showing people who offer hybrid work get a lot more applicants to work at their companies? i wonder at what point you just say the norm is not going into the office? i'm trying to be generous.

at a certain point it is just sour grapes on my part. jonathan: sour grapes on my part to. lisa: is personal. jonathan: staying in bed, tv screen behind me as a headboard. lisa: my goal for 2025 is to be a better person. jonatha wewill see. >> by doing this we are clearing the decks and setting up for trump to come in with the america first agenda. jonathan: live from new york city, good morning. ♪

i can't believe you corporate types are still at it. just stop calling each other rock stars. and using workday to put finance and h.r. on one platform. tim, you are a rock star. using responsible ai doesn't make you a rock star. it kinda does. you are not rock stars. (clears throat) okay. most of you are not rock stars. oooh. data driven insights, and large language models. oh, that's so rock roll. it is, right. he gets it. yeah.

jonathan: frances donald from rbc joining us in the program later, echoing what lisa was talking about earlier. there is no consensus at the federal reserve, there is no

conviction in this fomc. trying to decipher their perspective or bias as a whole is a false errand, something you are making a point of. lisa: a couple months ago everyone was talking about the fed put being back. the floor under valuations going forward was a tailwind at a time downside growth shocks were being met with fed rate cuts. if you have fomc members concerned about the potential for inflation from future policies, that might not be the bias anymore and the fed put is gone. jonathan: certainly a question of the bias in the last 24 hours, attempting to bounce back. we are up .4% on s&p 500 futures. trump pushing back on the budget. >> he said i get it, we understand you are in an impossible position, everyone knows that. we still have a razor thin margin of republicans. any bill has to have democratic

votes. they understand the situation and state is not directed at you, we don't like the spending. i don't either. we have to get this done. by doing this we are clearing the decks and we are setting up for trump to come roaring back with the america first agenda. jonathan: president-elect donald trump opposing the stopgap funding bill speaker mike johnson and democrats presented tuesday. trump pushing for lawmakers to increase the debt ceiling, writing on truth social that the most bullish and inept things ever done by republicans was allowing our country to hit the debt ceiling in 2025. it was a mistake and must be addressed. joining us from the nation's capital is bloomberg's tyler kendall. tyler: burke news reporting vice president elect jd vance spent last night on capitol hill -- bloomberg news reporting president elect jd vance spent last night on capitol hill negotiating with mike johnson. this begin with initial

criticism by elon musk and vivek ramaswamy and then president trump voiced his opposition. the original bill would've funded the government through mid-march. trump says he does support some supplemental funding, notably disaster assistance and economic assistance, but he said the current bill had too many provisions he thought would help democrats politically. he did not just oppose the bill, he went two steps further. he told republicans the need to raise the debt ceiling, a political fraud issue he admits he does not want to do with. he would like to see that addressed. he threatened any republican who came out against that idea that he would support a primary challenger against them and that echoes a similar threat we heard earlier this week he made against senate republicans who might be thinking of voting against his nominations "for political reasons." if i have learned anything from living in washington it is when

one election ends another one starts. into a 26 the next midterm elections republicans will be defending 20 senate seats, double the amount they just had to defend in 2024 that ultimately helped them flip that chamber. that goes to say there will be many more vulnerable republicans , a captive audience who will be listening to these threats from the president-elect. lisa: i had to be thinking about this children's book, if you give a mouse a cookie, because essentially mike johnson proposed an additional $10 billion for farmers and then all bets were off and the democrats added a pay increase for members of congress, new regulations for health administrators, the rfk stadium, moving it to washington, d.c. than the gates were open. i wonder how much this highlights how splintered the republicans are and how difficult it will be to get through some of the proposals the trump administration has put forward. lisa: exactly -- tyler: exactly.

this is setting up a conversation that shows it will be difficult in the next congress. trump is asking congress to prioritize three things he wants to see them work on off the bat. that is immigration, energy, and tax cuts. it is opening this conversation from more conservative members of the house freedom caucus saying if there will be tax cuts there also needs to be spending cuts because at the end of the date when we were talking about too many provisions in the bill that came out and president-elect trump taking issue with some of them, notably that members of congress would've gotten a pay raise, the initial frustration with this bill from any republicans was there was not enough papers to offset -- not enough pay fors to offset the spending and that is already starting to bubble up when we talk about these conversations, particularly that trump has proposed tax cuts that bloomberg analysis shows that if they were made permanent -- that

would amount to $10.5 trillion being added to the deficit over 10 years. that is something republicans will have to grapple with in the next congress. lisa: do we have a sense of whether donald trump would have torpedoed this without elon musk coming out first and being angry about it? tyler: i was talking to one republican strategist about this who said he does not necessarily blame elon musk since he is the one tasked with cutting government spending and perhaps the easiest way to do that is cut the spending that has not happened yet. republican congressman andy barr from kentucky came out yesterday and told reporters his office was flooded with calls from constituents saying they had seen elon musk's posts and that is what propelled them to call his office and said he needed to vote no on the original bill. it is clear that musk's h helped stoke this fire -- musk's reach helped stoke this fire leading

trump to put out a statement that he unequivocally opposed it citing many of the claims elon musk originally put forward. jonathan: tyler kendall in washington, d.c. the incoming president has a tough job. you need a big psychological shift in washington, d.c. there is an addiction to spending that grips both parties. you have seen that. you described it. lisa: the problem is there is spending that can be productive but there is no overarching mechanism to look at what is productive and what is wasteful and that is what people are hoping for, whether that can be put in place is another story. jonathan: more on the story later. coming up, iain stealey of jp morgan. ♪

it's our son, he is always up in our business.

it's the verizon 5g home internet i got us. oh... he used to be a competitive gamer but with the higher lag, he can't keep up with his squad. so now we're his “squad”. what are kevin's plans for the fall? he's going to college. out of state, yeah. -yeah in the fall. change of plans, i've decided to stay local. oh excellent! oh that's great! why would i ever leave this? -aw! we will do anything to get him gaming again. you ankevin need t fix this internet situation. heard my name! i swear to god, kevin! -we told you to wait in the car. everyone in my old squad has xfinity. less lag, better gaming! i'm gonna need to charge you for three people.

jonathan: picture this morning very different to yesterday afternoon, bouncing back from big losses. equity futures look like this. on the russell the small caps up .4%. you saw the moves yesterday afternoon. the biggest one-day drop since august on the s&p, since july on the nasdaq, since june on the small caps. the russell got hammered. lisa: why the big reaction? was it because they took one rate cut off the table the market was expecting for next year and now only 50 basis

points of rate cuts? was it the fact that there was clear confusion, or was it the idea this could no longer be considered the tail wind everybody was hoping with with a soft landing nirvana of tax cuts and deregulation. jonathan: coconuts do not fall from the tree, kamala harris would talk about the context. no idea why i found the need to throw that in. let's talk about the context. this meeting failed because of what happened in the november news conference. my take is his approach to the november news conference set them up to fail at this one when they had to produce a forecast and this is why. in the news conference he comes out and says we do not speculate or guess. easy to say on november 7 shortly after the election where you do not have to produce a forecast. in december you have to produce a forecast and it is obvious. you asked the question, did he guess, and some people said yes. how much of the change of the forecast was about trump, how

much was about the data, the lack of conviction explaining what was what underpins the confusion for much of that press conference yesterday. lisa: especially because it was not clear he understood that either. this is a confusing moment. in november he had said we are in a black box right now. we need a month or two to understand what the implications are in right now each member is dealing with it the way they can and i will get back to you. that might've been a more honest answer. the difficulty is this is not a market he can please because it is a market that has splintered and trying to give clarity he muddied the waters at a time where it is clear they do not have an upper hand. jonathan: he was burdened by what has been in the bond market. two-year yields lower by three basis points. on the 10-year gilts up. -- on the 10 year yields up. the move on the 10 and 30's continues.

lisa: people are talking about if you are concerned about revising up inflation expectations then why cut at all. that was a question not answered in a way that gave this market satisfaction they were committed to tamping down inflation going forward. jonathan: you know what happened in foreign-exchange, yields up, dollars stronger, best performance for dxy since the postelection rally in the aftermath of the donald trump win, closing at the highest level this year for dxy. dollar-yen up another 1.4%. the japanese are not ready to hike interest rates again at the boj. that rubber band stretches even more. lisa: there was one dissent among the nine members on the bank of japan saying we should raised by 25 basis points. this raises the question of how much these other central banks will have to respond to the strong dollar more than concerned about weakness or not enough inflation if you are the likes of japan. jonathan: under surveillance

this morning, donald trump opposing the proposed funding bill on capitol hill, threatening to oust fellow republicans if they accept legislation that does not include his demands. this just days before funding is expected to expire. the fun and games begin in washington dc. it is not fun that it is certainly a game. lisa: a question of functionality and what can get done which highlights what amory has been talking about, the narrow majority in congress. a question of how much consensus you can get and what role elon musk plays. elon musk came out and basically said no more spending, stop it with the raises. then donald trump came out and said it too. how much will he be setting the tone? jonathan: maybe he is just part of the attack dog team. we have to pick wanted be consistent. a few weeks ago you said

democrats saying he had no power, a few weeks later they are saying he is the sitting president. i would say he has great influence but limited power. lisa: and that is the case for most people in washington, d.c. i will take note for what i just criticized jay powell for saying. i will not say for any certainty who has power. as long as he is first buddy he could have a lot of power in deciding what president trump has to say. jonathan: what is the president threatening to do? primary people who do not come along with him. howdy primary people? need money. where does the money come from? elon musk. lisa: you are following in all of the power camp? jonathan: i think power and influence is combined and money as part of that. that is why elon musk has a much influence. i don't think that makes him the

sitting president. lisa: i did not say he was the sitting president. let's move on. jonathan: bank of japan holding steady. the end moving after the bank said they need more information on trump policies before making a decision. we have policymakers worldwide hesitant to make moves because they're waiting to see what happens with policy and washington, d.c. lisa: the market is moving anyway. in 25 minutes we get a decision from the bank of england. the ecb later on. how much does the currency depreciation in their region affect how much they can cut rates even if their economies might need it and their economies are still existing despite the uncertainty we might see elsewhere? jonathan: more yen weakness off the back of the call. volkswagen and union leaders moving closer to a deal that would keep factories open. sources telling bloomberg management is ready to keep running in return for workers

foregoing bonuses. i'm not sure that would get it done with shareholders. this stock is down more than 20% , the industry is structurally challenged, the company has six and 50,000 employees and you have to do something to restructure. -- 650,000 employees and you have to do something to restructure. lisa: if they don't what does that mean in terms of job cuts and when is the relief from the government? the government is in complete disarray. they need policy relief at the top to stave off some of these closures. otherwise you have to imagine the layoffs will continue. jonathan: germany is odd. you have countries looking for physical space but they cannot because the market will not give it to them. in germany they are looking for fiscal space. lisa: it goes to the sociological study which is fascinating. jonathan: let's get back to the federal reserve and lisa can continue doing that in her spare

time. the fed making a predicted 25 point rate cut. iain stealey sang the fed's decision to step to the side makes perfect steps having lower that policy rate by a full percentage point from his peak they can afford to be more cautious in considering further adjustments. welcome to new york and good morning. what changed yesterday afternoon for you? iain: we are in an environment and this was the problem jay powell had during the press conference -- they just do not know. lisa said it. you have some people put in the forecast, there are some not, there is a lot of uncertainty. they are struggling with an environment where inflation has been more sticky than they would've hoped for. growth has been stronger than they were expecting. they raised all of their forecasts. it makes sense to take a pause. they have done 100 basis points. that has been forced through. it has happened.

now we will step back and wait for the january meeting and have more cents in march as to what the ministration will put into play. jonathan: what is the price of that uncertainty? is it high yields at the long end or lower yields? lisa: the initial reaction is what we have seen. high yields at the long end. if we start to get to an environment where the data started to look more dubious and we were still uncertain the fed was going to react because they were concerned about inflation expectations, then the long end will get a rally. for the time being we are looking at people concerned. we are not sure what is going on. the u.s. economy is just doing better than thought. lisa: i am concerned about why this is not making the long end a buy. i would think this would make the bond market on longer duration attractive if you have a fed no longer biased to cutting it in the mood to fight inflation considering the fact

this is a jay powell that highlighted how surprised they have been from the stickiness of inflation. iain: the curve moved up in parallel to some extent yesterday. it was not as if people were focusing on one party, it was a general move higher in yields. the fed is not going as quickly as people thought. we are still concerned about the fiscal side. the big question to me would be how high can these yields actually go? that is to your point. it does not feel like we are in the environment we were last september. the cash rate last september was 5.5%. there was still a probability of other hike and we are 100 basis points lower. the fed is still on an easing path, even if you will be slower. it does not feel to me that we will go to levels we saw in september which means when things settle down and when cooler heads prevail there will be a lot of people thinking insurance you get from fixed income makes sense. lisa: going back to what john

was asking, the risk premium and what you have to bake in, a new charge for the level of uncertainty we see right now in the economy. i wonder if this makes credit less attractive on the margins given the fact that companies will be evaluating the scene in the same level of uncertainty as the federal reserve as economists and as traders? iain: from our standpoint corporate fundamentals look strong. we like to get policy out of administration that is corporation positive. we know the administration is going to look at things like the stock market and they focus on things like that. to me it is a good environment from the credit side. credit spreads are tight. the yield is important. lisa: if this is an administration that looks at the market and tries to make sure the stock market is rising and this is a federal reserve that watches the stock market rises and says that is frothed it is more inclined to keep rates

higher, who you listen to more? iain: i'm not sure the federal reserve does look at the stock market because the stock market is going up and they continue to talk about tight financial conditions. i think the administration does look at the stock market. jonathan: january 10, next payrolls report, can this whole story flip again given the hypersensitivity of the fomc to incoming information? iain: the market can definitely flip. you do need jobs but we have also heard that now inflation is back in the game. we have heard inflation under control, we've heard comments that it was the labor market, the unwillingness to see the labor market deteriorate further , now we have seen that from 2.1 to 2.5, suddenly that is suspect. i think jobs are important but will be focusing on inflation as well. jonathan: we have been whipsawed three times with no underlying assumptions about where the economy is heading. is that unusual for a federal reserve chair? iain: it shows the uncertainty

we are in and shows yohow much the markets drive the price action. when you think about what did the fed do this year, they have four forecast prices, they went to two, it was at four. it was the market during april saying we should be hiking and then it was the market back at six. the market has been the one whipping around. jonathan: appreciate your time. the focus has shifted. the emphasis seems to be much more on inflation. the bias at the federal reserve has proved the markets a fair bit. lisa: to me what stood out is his explanation of how concerned they were inflation continued to surprise to the upside and that is one of the reasons why they are rethinking how quickly they will cut rates next year. a key question to me is what data points would it take for this fomc to completely change its tone once again? for some of the fomc members who

might be in the minority this time to come into the majority? jonathan: actually looking forward to the fed speak going into the holidays. if you are just joining us, welcome to the program. equities attempting to bounce back from yesterday's losses, the biggest one-day loss since the summer. we are higher .4% on the s&p. here is your bloomberg brief. yahaira: the supreme court agreed to hear tiktok's challenge to a law that could ban the app in the u.s. if it is not sold by its chinese parent company. arguments will be heard by the high court on january 10, just nine days before the ban is set to take effect. tiktok and bytedance claim the law violates free speech protections. meanwhile bloomberg has learned apple is scrapping plans to build an iphone hardware subscription service. according to people familiar with the matter the idea was to make owning an iphone like subscribing to a nap with consumers paying monthly fees

and getting new phones each year. the project was scrapped due to a number of setbacks including regulatory concerns and software bugs. barclays is said to increase its annual bonuses by 20% after improve your for traders and investment bankers. trading staff is expected to see a 5% to 10% increase while bankers in debt and equity capital markets could get 10% to 20% more. this is welcome news for employees after last year when thousands of bankers got no bonuses at all. jonathan: bob michele, if you're listening great job just moments ago. lisa: you need real analysis like that to keep going. this is the great moment. jonathan: find out the numbers in the next few months. i'm next, chair powell changing his tune. >> in the near term the election will have no effects on our policy decisions. some did identify policy uncertainty as the reasons for

more uncertainty around inflation. lisa: that conversation -- jonathan: that conversation is up next. from new york you are watching bloomberg tv. ♪

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jonathan: so much to digest following the news conference with chairman powell. they basically delivered a news conference which was consistent with hiking interest rates for the next 45 minutes. lisa: and said it was a closer call and at the same time not necessarily giving clarity as to what would cause them to cut rates or potentially hike rates in the future. jonathan: welcome to the program to all of you just waking up on the east coast. some of you are waking up on the west coast which is incredibly early. those of you working for pimco.

lisa: go back to bed. jonathan: i don't think they can. in the bond market yields higher two basis points. under surveillance, chairman powell changing his tune. >> in the near term the election will have no effects on our policy decisions. we don't guess, we do not speculate, we do not assume. some people to take april a merry step and start to incorporate highly conditional estimates of economic effects of policies into their forecast. someone did identify policy uncertainty as one of the reasons for their writing down more uncertainty around inflation. jonathan: what a difference a month makes. jay powell admitting multiple fomc members weighed policy uncertainty. drew matus it's there remains a risk inflation remains higher

and it may impact the fed's path forward including reversing course. drew joins us for more. we all have the same question when we saw the updated forecast. a much was about the realized data and how much was trump? which was it? drew: to answer that you have to look back to september. why did they go 50 in september? because they did not want to go 50 around the election. why did they go in november? because they went 50 in september. it is like the woman who swallowed the fly and they keep trying to fix a situation and make it look like they are not political when they seem to be becoming political. they are like my teenager driving a stick shift car. jerking forward, spluttering around, the card does not function well when that happens and that is the market response you saw yesterday. jonathan: what do you think they need to fix when they convene next year? drew: they need to work on consistency.

you cannot be cutting rates and hiking your inflation expectations for the next two years. how that got through and someone to not pointed out -- maybe the most markets have a person on the committee did figure it out in the president dissented because it did not make sense what they were doing. she came out of an investment bank and would have a sense markets were not going to respond well to this messaging. lisa: i love your comment, if an alien lands on the planet with a think the fed needs to be cutting. i love the idea of alien setting monetary policy. i am curious about how this can be a fed that is a political? all economists have a bias or see the world in a viewpoint. is there a metric that would give markets confidence this was a federal reserve trying to strip out any political bias? drew: yes.

if you will raise your inflation call do not be cutting interest rates. you've been missing your inflation targets. people could justify the idea of a slow normalization of rate cuts or of rates down to a level that is consistent because there could be lingering tightening effects going on. it seems like they are rushing to get to that neutral level as opposed -- they keep saying they are data dependent but this is not seem like a data dependent move. maybe they are moving too fast and they are like we have to keep moving. they pre-committed to a course of action and it got them in trouble yesterday. lisa: you said the market is not the fed's friend and i wonder how you believe the fed will look at market action? on one level this is may be what they are looking forward to reduce some of the potential inflationary pressure. drew: maybe.

if we take a step back and we say the fed decided to cut rates, did they really want tends to behave the way they did in the impact that will have on the housing market, have they made the economy stronger or weaker by cutting rates. the answer is they made the economy weaker. they've not done anything to contain inflation issues and people are rightly concerned they are not being consistent and it is very hard to read and inconsistent fed and determine where policy is going to go. torsten slok is saying they will potentially hike rates next year. i have some sympathy for that view. i do not have a lot of sympathy for a few they will be able to cut rates more aggressively or they might be able get back down to neutral. sometimes if you run too fast at the start you cannot finish the race you want to finish. jonathan: this race is a big question about markets. people are very bullish into 2025. the average forecast on wall

street next year was north of 6600. do you think that now we are compromising the easing bias of the federal reserve, now that the policy is increasingly uncertain going into next year, there is a reasons to start leading into the direction or do you pick up the pieces from yesterday and keep running? drew: there are hints that growth are fine, there are hints that growth are weak. i would say on balance it still suggests -- the economy still looks in good shape moving forward. at the same point it was already a questionable -- how much risk you want to take to get the returns he will expect? people have dialed up the risks and dialed down the returns. we are seeing that dynamic play out. jonathan: appreciate your time. thank you. most equity strategists would say we could handle inflation at

this level as long as growth -- if that something else is inflation that is more toxic. lisa: it is a toxic brew if you have inflationary pressures too strong and a fed that precommitted to rate cuts that some view as a policy error. we have two people on the show hinting at that given the fact that this seems to be a market with renewed concerns about lingering inflation. the fact they cut rates and then increased next year's inflation expectations was a shot across the ballot to martin's -- to markets that had gotten over exuberant. jonathan: market pricing, they have some optionality that maybe they wanted for 2025. adam posen came out in the summer and said start try to find that optionality right now for a very uncertain tray 25. on the program with manus cranny earlier. up next, bloomberg's mike sheppard, former kansas city fed president esther george and former house majority leader eric cantor.

a bank of england rate decision just around the corner. ♪

>> the federal open market committee decided to take another step in reducing the degree of policy restraint by lowering our interest rate by a quarter percentage point. >> they still believe they were restrictive and even with a 25 basis point cut they maintain that level of restriction. >> i think they did the right thing. i am pleasantly surprised they went to two cuts next year. >> we are not seeing a

meaningful dialing back of policy. >> they are signaling a pause but by march the forecast might look different. >> this is "bloomberg surveillance" with jonathan ferro, lisa abramowicz, and annmarie hordern. jonathan: the second hour of bloomberg surveillance starts now and your scores look like this on the s&p 500. equity futures up across the board. on the s&p 500 this morning positive .5% following the biggest one-day loss since august, the worst fed day performance going back 20 plus years. on the nasdaq the biggest one-day drop going back to july come on the russell the worst day of the year so far. equity futures up .5%. two year, 10 year up 10 basis points in yesterday's session come up to 4.32 on the two. on 10 we had some way to the move. 4.5241. the federal reserve reducing interest rates. they give inflation a hike.

they dropped the median dot for 2025 from four cuts to two and people asked why are you cutting interest rates. is it about the data or the incoming ministration? they seem confused about 2025 and apparently they are not the only ones. over in england, the central bank deciding to keep rates unchanged and governor bill lee saying we cannot commit to how much to cut in 2025. lisa: it is a black box and a dark room with lots of furniture. it is the u.s. and the bank of england after you saw wage growth came in a bit higher than expected. andrew bailey saying a gradual approach to future cuts remains the right approach and that seems to be the new zeitgeist for 2025. let's head to london and get more from guy johnson on this rate decision. how close was this and how disrupted was it by this week's data? guy: that is where the surprise

comes. if the fed delivered a hawkish cut yesterday in some ways this is a dovish hold from the bank of england. rates remaining on hold. there was a lively debate about whether or not that cut should have been delivered. bailey talks about a gradual approach to remain on the right course but they are downgrading the growth picture. they talk about the labor market being largely in balance. you can see what is happening to the pound, giving background gained earlier on against the u.s. dollar. the market going into this decision was fading moves for 2025. i wonder whether or not that with hindsight will prove to be the right decision. we are seeing traders adding to bets of easing, 58 basis points of cuts next year. that is a pickup in terms of what is anticipated. the u.k. faces a difficult picture compared to the united states. it is a difficult course to

navigate for the bank of england going forward. a hold today feels more dovish. lisa: central bankers seem to be scarred by the recent history. i wonder how much the reason they do not cut was fear of a liz truss moment at a time the u.k. faces more weakness than the u.s.? guy: the u.k. certainly does face a lot more weakness than the united states because of the growth trajectory going forward from here. the latest budget from chancellor reeves did catch the bank of england by surprise. it has changed trajectory and made the more cautious. there are inflationary elements from that. i do not think there is any great fear you will see yields exploding higher in the moment we did around the liz truss moment. the real risk is the stagflation risk that you see this weakening in growth from the u.k. delivering right now with inflation hovering there is a risk. the bank will focus on that inflation risk.

the data the u.k. faces is if we see growth that inflation gets out of control. the u.k. economy does not have the potential to deliver much more growth without delivering significantly more inflation and that is the concern right now. today more dovish. in some ways today is a nod to that growth risk while maintaining the approach inflation remains the bigger threat. jonathan: appreciate the update. guy johnson out of london. sterling positive but off session highs. cable down to 1.26. dovish dissent at the bank of england. hawkish dissent at the federal reserve. one thing in common into 2025, maximum uncertainty. lisa: that is the reason why we are foggy. we are in a dark room with lots of furniture. a key question is how much can central bankers get ahead of this? how much are they susceptible to this unknown? do they have any scenario

analysis to look out and has the equity market fully wrapped its head around the uncertainty being reflected in some of these tortured decisions we are seeing from central banks? jonathan: can i torture the analogy and extended? is not just the room has gotten darker and it is -- they don't know what room they are in and that is the big problem. lisa: they don't know if they are in the kitchen or the bedroom. jonathan: or if they are in someone else's house. they have no idea where they are. i have said this multiple times. we begin to sour stateside after the fed struck a blow to the rally. the s&p 500 posting it's worth session since august, the worst fed day since september 2001 and the nasdaq seeing its biggest drop in five months. savita subramanian staying bullish. we target 6, 6, six, six on the s&p 500 with cyclicals -- she

joins us now with more. let's start with the outlook for next year. what underpins that and have you made any assumptions about the changes we could see from the incoming administration? savita: we are not assuming anything about the fed, we are not assuming anything about major changes in policy. what we are assuming is we see a little bit more of the same and that is a big reassuring effort already underway. we are seeing signs of a pickup in inflation. we have been writing about how if we are in an environment similar to 2022, what you want to own? let's say real rate surprise to the upside which so far is a little bit of the story. we have inflation are completely back in the bottle. higher nominal growth expectations next year. in that environment you do not want to be in small caps and there is a good reason small

caps sold off. you want to be in companies that generate free cash flow because short rates will remain higher-than-expected and you want to be in companies that are more inflation protective. they participate in inflation rather than get hurt by inflation. that will be a big cohort of the s&p 500. some big cap tech companies. 2022 i will see it is a worse year for stocks overall because we were not positioned -- today we are in a much better place than we were a couple years ago. the fed has done a lot of work getting a soft ground zero. we have latitude to ease our way out of the next soft patch. i feel like this is a moment or maybe the fed disappoints in terms of how easy they are. maybe other central banks disappoint. the s&p 500 can handle it and there parts of the market that

do well in that environment. lisa: the larger takeaway is a lack of certainty and i think he is in a workshop that is dark with lots of workbenches so it can be more perilous and it is also a time of construction but construction takes investment. i will keep going. i wonder if companies have the confidence to make investments in their workshops in order to expand their businesses at a time of maximal uncertainty where policy members do not have a framework to even look at where we are. savita: i think that was the story of the second half of this year. we saw a meaningful pause in, in planning because of this binary outcome in the upcoming election. at least we have a result of the election. i would argue we are at a point of potentially more certainty than we were in late october. we have a result, we know who is in charge for the next couple of

years. we have some sense of what will happen. we know there are tariff risks and the potential for becoming energy exporter again. the big surprise next year -- folks are expecting stagflation. what i find interesting is fund managers, professional money managers are basically assigning a 50% probability to stagflation. stagflation barely ever happens. there is a better chance of an upside surprise to growth. corporate's navigate different policies quite ably. we had a time when the fed hiked demonstrably. we had inflation go from -2923 and margins -- we had inflation go from negative to nine to three.

valuations are high for certain parts of the market but not necessarily for the average stock. this is that environment where things will be ok. lisa: i am looking at the sectors you like, financials, discretionary, real estate. some of these have gotten bid up and a lot of it was predicated on the idea of rates going lower , predicated on the idea there would be a fridley fant -- a fridley fit -- a friendly fed to cutting rates and a rate market that would go up. if we do not get those things how much does that undermine the argument for the sectors? savita: i think consumer discretionary is most at risk of a more hawkish fed. when i look at other sectors, when i look at large cap financials, if we had a steepening yield curve, let's say the short end pauses in the long continues to rise which is what we saw over the last couple of months, in that environment i

think financials do well. large cap financials, let's think about what this administration means. deregulation is on the top of the list and that is positive for financials. when you think about what ai can do for cost control it is more professional services industries that is profound from margins. i do not think the cases have gone away. for some sectors geared to short rates like consumer discretionary, that might be a risk. if you look at the consumer, we are ably employed. we have an administration that will probably lower the cost of energy which helps lower income consumer which is the one area that is starting to fray. i think it will be ok. that is the tail risk nobody is talking about is it is going to be ok. jonathan: i remember a note you

put out a few years ago about the labor intensity of the s&p 500. there are some questions about the supply side of the labor market under the incoming ministration. how you think about that with regards to the parts of the equity market you want to own and want to avoid? savita: let's say we get tighter immigration and a shorter supply of labor. i think it is a manageable risk because we have already been working in the contexts of demographics eating up the workforce. here we are today. we could see wage inflation increase in certain pockets. it is most acute for restaurants, construction, food services, those are the areas where you could see a title labor force. think about what those areas are doing. they are focused on efficiency. and restaurants we have seen the labor to sales ratio demonstrably decline. in a restaurant there are less people working and more processes.

i think that is the offset to a tighter labor market. i don't know how you build a house with ai so that is the one area where you could see some problems. there are areas where this could be a margin squeeze. jonathan: things will be ok? but the number you chose was 6666. jonathan: i have to explain that. that is the idea that we are going from 666 at the market lows, add-on another six, this is amazing assent. jonathan: savita subramanian. things will be ok. equity futures doing ok. with an update on stories elsewhere who your is your bloomberg brief. yahaira: pairs of homebuilder lennar are following, the company forecasting new orders for the first quarter that missed analyst estimates. lennar also announcing plans to

spin off most of its landholdings into a separate public company. it plans to seek real estate investment status for the new company as it aims to shift to an accent light construction model. there national brotherhood of teamsters announcing thousands of amazon warehouse employees and contract drivers in four states will walk off the job this morning right ahead of the holiday delivery rush. workers in new york, illinois, california, and georgia will strike after the teamsters union accused amazon of failing to come to the bargaining table to negotiate contracts. an amazon spokesperson said the teachers have misled the public about efforts at the company. and a change is coming to postseason college football. the new york times reporting the presidents of the country's eight ivy league schools announce they will allow their teams did compete in the 2014 playoff. since the conference was formed in 19 football -- since the

conference was formed in 1954 seasons of come to an end at thanksgiving to allow students to focus on their schoolwork. not anymore. jonathan: does anyone outside the ivy league care about that? to me there is sec football and nothing else. lisa: there are a lot of people that are interested. jonathan: i probably offended a lot of people. lisa: please message him. jonathan: don't do that. up next, trump starting a fight on capitol hill. >> deficit hawks are gone in washington and maybe need the markets to send a signal, it is time to be more sober in our fiscal outlook. live from new york city, you're watching bloomberg tv. ♪

jonathan: is on the s&p 500 bouncing back. this session is up .6% on the s&p. bond yields up another basis point or two. yields keep climbing on the 10-year and the 30 year. the 10 year maturity 4.5281. under surveillance, trump starting a fight on capitol hill. >> we will have to find ways to find savings. deficit hawks are gone in washington. maybe we need the markets to send us a signal it is time to become more civil -- more sober in our outlook. the u.s. economic leaders put in place have really believed that outlook. how will these different policies be put in place? jonathan: donald trump opposing a proposed government funding bill and training to oust

republicans to accept -- to accept the legislation just days before funding is set to expire, raising the likelihood of a government shutdown. bloomberg's mike sheppard joins us for more. can we start with the basics? a continuing resolution. tell me what one is and what that is they're trying to pass in d.c.? mike: they are trying to pass what is known as a stop gap spending bill that would tie them up for a couple more months so they can negotiate further. the funding authority for the fiscal year was supposed to have begun on october 1 and they should have well before past this legislation, got it done by september 30. they ran up against that deadline so they passed a temporary bill that expires at midnight on friday. now they have to do another one in the idea with this bill is it would tide us over until mid-march. what makes this so controversial

if you imply it as business as usual? michael: it is not so controversial except to the president-elect and some of his closest advisors, including elon musk who is leading this department of government efficiency initiative aimed at slashing the size of government and slashing government spending and they together took aim at this bill yesterday on x and then the president-elect followed up with vice president elect jd vance saying we do not like this bill in its current form. keep in mind they have spent weeks if not months negotiating this and they have been on track to pass it in time to avoid a shutdown that would take effect early saturday morning. this is more than just a monkeywrench into the process. it derails it altogether and they have to back to square one. lisa: it was more than 1000 pages. mike johnson pulled this together.

how much does this imperil his leadership when he got everyone together and then thrown out? michael: it is not great. we talked to ralph norman, one of the conservative republicans johnson would need to regain the speakership when they hold new elections for leadership when the new congress is seated in january. those kinds of doubts are being fueled by this move by trump and elon musk, and is, shots in congress? is donald trump putting an arm on johnson that undermines his authority with lawmakers? it makes it complicated for him to go back to members and say you know the deal we negotiated, we have to unravel the whole thing because the president told us so. lisa: is one thing to have grand

proclamations about efficiency. it is another thing to work within the confines of a complicated system that is needing to chuck along for people to get the services and be employed at different places. at what point does this create a level of dysfunction some people in washington, d.c. are concerned about, whether government shutdowns, confusion over certain plumbing -- over certain funding for specific programs. michael: this accentuates the dysfunction they are saying they want to undo or reverse. the spending bill, more than 1000 pages. it includes an addition to agency operations being extended -- it also includes disaster relief, aid for farmers, and a lot of people would like to see

that get through. those being apparel by were -- a process that has been unraveled by the intervention of the president-elect. he is not president yet but as the de facto head of the republican party, the incoming commander in chief of the largest economy in the world, his word does carry some weight and he is also making some threats to republicans who decide to cross him and janine to vote for this package or support this package and do so by funding opposition to them in primary elections toaster years ago. lisa: this might be a silly question but where is joe biden? michael: very good question because he is still president. his signature is valid. jonathan: how different is this transition to transitions before? michael: it is different in a sense because we see donald

trump inserting himself onto the world stage and onto the stage in washington incoming presidents have not before. he does bring the benefit of knowledge having served as president previously. in this case i think the democrats are looking at this dysfunction and may be sitting back and watching. we saw hakeem jeffries put out a statement, we have a deal with republicans on spending, we have the bill, we expect the party and congress to abide by it and then put the onus back on trump and elon musk and the republicans in congress that get done what they need to. jonathan: great to see you and good to have you in new york. mike sheppard. if the honeymoon had ever started it is over for the likes of speaker johnson. business as usual in washington, d.c. is controversial to

mar-a-lago and they are trying to change it. lisa: this is true, however trying to change it by torpedoing a bill might mean that if they cannot get anything together and mike johnson cannot get a consensus that could lead to a government shutdown and higher yields and the idea of greater uncertainty. i wonder at what point this filters into ramifications mar-a-lago would not be happy to see. stocks up on the s&p. that is the bounce you might be looking for after the biggest one-day lost since august. coming up, we catch up with former kansas city fed president esther george as the fomc signals a stronger focus on inflation. live from new york city, you are watching bloomberg tv. ♪ (♪♪)

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jonathan: some relief, here. we have bounced back. session highs are up on the s&p 500. this is what peter thiel doesn't know about the meeting yesterday. positioning has been bullish on stocks. it might be easy for the grinch to steal the rally. you said this repeatedly this morning. you pointed it out. we have compromised the easing bias on the fed reserve. i don't know if that puts things into question completely but silently a move was made last month lisa: that some of the

underpinning. is is a capitulation that people needed to see before they go back in this morning and how much really is askew around lower liquidity. a lot of people don't want to be here today. a lot of people have gone on vacation. is that part of one of the big swings as well? jonathan: you want to translate? lisa: i don't. [laughter] jonathan: let's get you the morning movers with manus cranny. manus: i'm still here. the bridge for macron in the chip market, it is a personification of a billion-dollar miss for the second quarter in february, delivering 7.9 billion dollars. the theory is that the ai chip is going to say in the second half of next year. the pc market will grow but it's a miss on -- by 12%. smartphone, autos, i still don't have a car, but the data center

business did grow. it's not enough to invoke upside this morning. the biggest builders took a bruising day, yesterday, overall in the market. lennar is down. there is supply can straight with demand and affordability is limited because of higher interest rates and there might be an extended pause in the hiking cycle. margins, we cannot give you guidance for the back end of next year. 19 to 19.25, but it can't be a guide for the full year ahead. tesla, yes, they bounced back and it was a brutal day for them yesterday. in europe they have registration that fell by 41%. they promised you 500,000 cars and a quarter and they never delivered 500,000 cars in any quarter. that's a little bit under the hood of what's going on with tesla. by the way, registrations of

electric vehicles in europe is down 10%. tesla, down 41 percent on registrations. jonathan? jonathan: tesla, getting hammered after that federal reserve decision yesterday. though still up this month big time. the house majority leader saying that the latest stopgap funding measure is dead and a new deal has yet to be reached as donald trump says he wants gop lawmakers to include a debt ceiling increase in whatever package they advance. described by people inside of what washington is business as usual, but when you get them to tell you what that is and you hear it, that is why people are so annoyed with washington, d.c. to me, to you, this doesn't sound like business as usual at all. lisa: it consisted of mike johnson adding aid for farmers and in return, others in particular, democrats, saying that you need to have control of

the rfk stadium in a certain district transferred to washington, d.c. with a pay raise for members of congress, you need to also have another round of federal funding for the bridge in baltimore. you can make an argument for any one of these potential issues. the point being, but are we trying to do and how do we do that in the most direct way possible? jonathan: it's not what people voted for. they voted for a change. which is why the so-called business as usual is controversial and by the incoming administration wants to do something about it. it's a huge problem and it is going to be a big challenge for the incoming administration. there is an addiction to doing these things in washington, they believe it's normal. they have their own pet projects to secure their own political future to stay in office and that's not what people in the country want. lisa: and there's no appetite for real debates with real issues without a lot of hair

around the different bills and that's the business as usual they will try to grapple with. jonathan: more on that story throughout the morning. the supreme court says that it will expedite the challenge to a tiktok law banning it next month, scheduling the arguments for january 10, one week before the panel is set to begin. quite the start to 2025 for that company. lisa: especially since the day after that is the inauguration for trump. where will he fall, given that he has seemed amenable to them remaining in operation? jonathan: another controversial story that we need to squeeze in, nippon steel, the deal all but dead, written by the committee on foreign investment in the united states, setting the stage for biden to block the deal. they have until monday to approve the deal and extend the review, or recommend the president should kill it. lisa: i just hope that we can

get under grips what it means to have national security concerns and get that under control. there are some real national security concerns and right now i don't have a clear sense of what they are and i don't have a sense from bankers that they understand either. jonathan: we spent time talking to anne-marie about this. it should not be a political wing of the government. it should be about national security risk. over the last few years it has become highly political in line with the objectives of whoever is sitting in the white house and that's a problem. if you truly believe there is a national security risk associated with a company in this country, we need to do something about it and fast. lisa: and it's a bigger question at the likes of tiktok rather than u.s., by all accounts. there are a lot of consistency questions that people are asking. jonathan: one from a country who is an ally, one who is not.

sometimes it is as simple as that. turning back to the federal reserve, fomc officials see new policy on the horizon. jay powell likening the path as walking into a dark room full of furniture, a shift from the message last month about recalibrating policy. esther george writing that the rationale for cutting today is puzzling. notwithstanding, it was expected given the forecast for inflation. esther joins us with more. wonderful to catch up with you. how bizarre was yesterday for you, seeing the decision, looking at the forecast, listening to the news conference? esther: good morning. it's a challenging time, as the chairman said. a lot of the uncertainty is in the picture right now. with inflation persisting above the fed target, and i think the fomc has been clear, they are not deviating from the target, it raises the question of how well this recalibration was

positioned going forward. i think that we heard that yesterday. jonathan: what does it say that they are pushing out the date to hit the target? what does it mean? lisa: the fed understands credibility is based on a commitment it made to 2% inflation. and we are going for higher levels of inflation confidence is not as strong as it was three months ago. achieving that target was in sight. the longer the fomc takes to get to the target, the more risk comes from the expectations being unanchored. lisa: do you think it was the

wrong decision, then, to not just remain on hold in this previous meeting, given the fact that essentially there was a good argument not to cut rates that jay powell made himself? esther: i would have been comfortable with that, lisa. given how we have seen the data come in, throughout this time of restricted rates, we have seen the economy flourish. gdp has come in above trend. we have seen the labor market remain stable. inflation, of course, sticky. of course those conditions raises the question and the fed acknowledged it yesterday, saying that we may have to be a bit more deliberate here as we talk about recalibration. lisa: i was struck by the fact that i was looking for clues in his speech about how far we were away from restrictive and

neutral rates, how restricted he believes we are. he said two different things in the same press conference. that we are not that far from being at a neutral rate and that we still have fairly restrictive rates. where you left as confused about where the fed lies when it comes to understanding the neutral they are looking for? 4 well that esther: well, -- esther: well, the chairman has said this before, and it is true, they don't know what neutral is today. they are feeling their way. the challenge of course is their most direct influence is on the inflation number and obviously they don't want to unseat a growing economy, they don't want to hurt the labor market. that is a part of their mandate. but it is true that they must bring inflation down. i think that this pause, if it turns out to be a pause, is one

that is warranted given the fact that inflation has not returned to its target. jonathan: there was also -- lisa: there was also a question around the politics around this, given the number of members taking into perspective the potential for trump policies to be inflationary. how much does that cover your view of the stickiness and concern you about the political ramifications for the federal reserve? esther: to begin with, we see an inflation problem aside from policy changes. in terms of thinking about the risk and where it lies, you of course have to take that into account. as you and i have talked about before on the show, one of the differences between now and what we saw in 2017 as the fomc contemplative tariffs, for example, is you are approaching

the inflation target from a different place. it raises the risk that has to be thought about as they go out. yesterday we heard people had approached their dot plots in different ways around that. so, i wouldn't take that as the sole reason to be concerned, but i do think that the fed has to reiterate its commitment to its inflation target. jonathan: you have been a part of that process but if you times . what was your approach and why did you think it was the best approach? do you take notice? do you wait for the policies? what is your approach? esther: my approach, and this is difficult for anyone who does forecasting, is to try to follow a rule. make sure you are being consistent in how you take in data and how it might adjust. certainly when you think about

the balance of risk, you have to look ahead and say are we coming into a time where it looks like it will be softening? are we continuing to have a healthy economy? those factors affect the look ahead that influences the dots you are putting down for the out years. completely imperfect, of course, but necessary to communicating how policy might evolve. jonathan: thank you for sharing that with us this morning, esther. leading us to where we were earlier, this approach to the november news conference, setting him out -- setting himself up for failure. when he came out and said that we don't assume or speculate or guess, following it up a month later acknowledging that some people do assume and guess about incoming policy, he used a different phrase, ultimately that is where they ended up.

some did, some didn't, and i would love to know what their forecast would be if they knew what the administration was going to do. lisa: this goes back to her point. what are the models and scenario analysis they are using? i sound like a broken record, but at a certain point, it is ok to make assumptions, that's the job. the question is, how do you do so and do you have a way of doing it that can strip out some of the fervor from market responses? jonathan: stocks bouncing back there, but not unwinding the move. yields up again yesterday, back to 304, 70. tomorrow, look out for mary daly joining this program at 7:30 eastern time. you don't want to miss that conversation. 30 minutes, here on bloomberg

tv. with your bloomberg brief this morning, good morning. >> howard lutnick's -- stepping back from cantor fitzgerald as he gets ready for confirmation hearings to be the secretary under donald trump. his son, brandon, will take over as ceo. philanthropist mckenzie scott gave $2 million to 200 organizations this year, raising -- bringing her total giving over seven years to more than $19 billion. according to a statement on her site, 75% of the groups support the economic security and opportunity of people who are struggling. a florida county board approved of borrowing for the tampa bay rays stadium to receive $300 million in bonds from the county with the owner providing $700

million in addition to being on the hook for costs overruns. it has been a difficult journey for them to secure a new stadium in the area, complicated this fall by the damage created by two hurricanes in their current home. jonathan: appreciate that. up next on the program, speaker johnson's uphill battle. >> we got to get it done. by doing this, we are clearing the deck and getting trump set up for the america first agenda. jonathan: that conversation, next.

jonathan: bouncing back, session highs on the s&p 500 higher by

0.8 percent on the s&p, bond markets are higher by a single basis point. under surveillance this morning, the uphill battle of speaker johnson. >> we talked until midnight last night and he said we get that you are in an impossible position, everybody knows that. you have a razor thin margin of republicans. they said the situation is not directed to you and i said guess what, i don't either, we have to get it done and here is the key, by doing this we are clearing the deck and setting up for trump to come bring back the america first agenda. jonathan: donald trump and jd vance opposing a bipartisan deal to temporarily fund the u.s. government and avoid a shutdown, writing that republicans must get smart and tough if democrats threaten to shut down the government unless they give them everything they want, calling their bluff. eric cantor joins us for more. good morning. how difficult will it be to

change the establishment in washington, d.c.? eric: you are seeing a taste of what's to come in the next two years. there's a real desire to want to kind of clean up shop and get on with a much cleaner, more focused progrowth agenda in d.c. the problem is that even on these spending bills, if republicans have majorities in both houses, which will be the case in january, you are still relying on democrats to get things done given the rules in the senate. you know, when you see the activity online from elon musk and then the follow-up from president trump, it makes it really tough. it defies the bipartisanship needed to get things done. jonathan: spending taxpayer money shouldn't be easy, it should be tough. that's the problem a lot of people have with this. they use terms like continuing resolution. but then you go through all the things stuffed into it, the

general public sits there and says -- what's this about? eric: that's certainly where the objection came from from elon musk and others, a continuing resolution that is just a stopgap measure, let's get over the hump so the government can continue to operate but don't do anything else. this is the difficulty. when you have got a margin the way that you do in the house that speaker johnson is dealing with, you need the democrats to help you because you are not enjoying unanimity on the part of the republicans. lisa: that said, this was led by mike johnson with the tit for tat over farmers. look, there is a bigger issue here, ultimately some of the bigger conversations about entitlements and health care issues and other big policies, people are not willing to have those in an honest way, how much is that the question where you have to gussy up everything with cute tricks and just don't do anything?

eric: the discussions they are having our around discretionary funding, it's not what you are saying, the entitlements. as you rightly point to, that is the real problem that is causing disproportionately a deficit and growing debt. no question. president trump has said we are not touching that. what i'm hoping is that with musk overseeing the doge effort, it could have a lot to do with the debate on policy and i hope that they come up with something to define the debate. hopefully it will be to clean up the way that the entitlements work so that we can begin to see how we can reform those, it will solve the debt and deficit. lisa: you are at an amazing vantage point, understanding how the sausage is made, seeing the business world react and being a part of that. i'm wondering how much of the efficiency the market rallies on

is jeopardized by trying to fix something that feels very broken ? eric: we are seeing our clients pick up in a big way the dialogue. there are deals being dusted off. those that have been put on the shelf over the last several years, in fact. turning into, i would even say it's an acceleration of the completion of deals. i think it is all about the optimism coming from deregulation. the fact that we will have an administration that is not an adversary to a progrowth agenda and business. it just tells you where we have been in this country. we have suffered negatives. it's been a war on a growth agenda under joe biden. so, i think that is ultimately going to prevail over any doubts about whether washington in the

end will get something done. i sit here today and say they will get something done to fund the government. jonathan: compare than mood to that in europe, how different is it right now, people fired up about america. consumer confidence is up. businesses, confidences up. eric: amazing. i spent a week in europe, it's amazing, the difference. being here, looking at the optimism, the momentum we have got. it's reflected in the valuations of assets, here. you can see the unleashing of not only strategics, but the sponsored clients. everyone is sort of, you can really feel it. in europe, everyone is looking here. that is the amazing thing. there's a huge difference in valuation between assets in europe and it would push people to look for margins over there, but no, you have investors and

folks looking here. everyone is coming here. it's striking. that political situation there is also now an additional stumbling block they have to deal with. jonathan: whenever the fight looks like an washington, d.c., it's clear that on a relative basis the mess is elsewhere. canada, germany, france, the list goes on and on. lisa: and it's not because those politicians are that much worse than the u.s., but the u.s. corporate sector has managed to outperform again and again, innovating. eric: i always say this, you look at the size of the government as a set -- percentage of gdp, we are much, much smaller. compare that to the eu, they are 50%. jonathan: francis pushing 60. good to see you, buddy. eric cantor there, former house majority leader. in the next hour, a massive

lineup including the secretary of state, antony blinken. ♪ think scaling your ai pilots is hard? think again. with watsonx, you can deploy ai across any environment. above the clouds and on lots of clouds. with your secured data on prem, in real time on center court and assisting bank tellers on the edge. watsonx helps you deploy ai wherever you need it. so you can take your business wherever it needs to go. ibm. let's create.

♪ >> some did identify policy uncertainty is one of the reasons for more uncertainty

around inflation. >> feels a little bit like they are prejudging potential policy outcomes. >> if they were front running policy they wouldn't have cut at this meeting. >> they have less conviction about that downward path of inflation. >> what we are going to get out of the fed is just that much more uncertain. announcer: this is bloomberg surveillance with jonathan ferro, lisa abramowicz and annmarie hordern. jonathan: the third hour starts now following the worst fed day performance for this equity market in 20 plus years. your bounce back looks like this. higher by 0.8%. across-the-board you board using the move of the nasdaq, small caps up by 0.8 5%. in the bond market, a higher yield in the long end of the curve continues. up another basis point. lisa: what really stands out

from this morning's analysis is with esther george said formerly of the kansas city federal reserve, that she would have been more comfortable not cutting rates and essentially she leaned into the idea that there was a really good case to not cut rates based on that inflationary pressure. the concern now, our markets going to think that this is going to be a fed that was on autopilot and made an error in cutting rates and a time when inflation continues to surprise to the upside? jonathan: the question has been asked on repeat. if you were going to be so hawkish, why did you cut interest rates? it is one thing to say it is a close call. it is another cutting interest rate inflation forecast. clearly there is a sense that everybody was looking at their own ways of modeling out how to judge incoming data. the result is people are questioning whether the fed put us there, and maybe that is ok

because if inflation is the problem may be the fed put is not necessarily on the table and also questions how this federal reserve and have different members are considering incoming policies. what is this going to mean going forward about the balance of risk might be? jonathan: compromised by what for me, by the incoming data, by the incoming administration? which one was it? and if you ask one fed official on that committee one question, they will give you one anther and another committee member will give you another. that is problematic for a fed chair who's got to go into a news conference and try to offer some kind of consensus. that is right will find just a little bit of sympathy for him. lisa: this idea that he said we don't speculate, he was sorted

so dismissive of looking at what potential policies could look like at the november press conference. it is totally understandable to have uncertainty about policy, to look at what some of the proposals are, to look at the starting point of inflation and make some assumptions. then don't shut that down because ultimately the fed has to speculate to some degree with their forecast. jonathan: two days after the associate -- election it was easy to say we don't have to speculate, guess and assume. set up a time, they would have to make some assumptions about the future. where i am that now is pretty clear. are they going to be swayed again by one data point, by cpi, by payrolls on january 10? this federal reserve, this committee has been all over. this market, but this committee as well. for unemployment through the

summer and i don't know how you described this moment but is not the recalibration phase anymore. lisa: this is a foggy, dark room with lots of furniture. this is a fed that capitulates with many more rate cuts next year if there is incoming data that shows a labor market weakening at a much faster pace. jonathan: higher by close to 0.9%, quite a bounce on the s&p. in the bond market, it yields bleeding a little bit higher on the u.s. 10 year. i believe for the first time since may. haven't seen these levels in quite a while. coming up this hour, wells fargo as the s&p 500 looks about spac. antony blinken, and the fed looks to a more gradual pace of easing in the new year. we begin with stocks steady, the fed denting the markets bull

run. the january rate cut should not be expected by markets. we look for the fed to be much more deliberative and remain in a data-dependent holding pattern as it pertains to future rate cuts. good morning. is it one print that changes the story all over again? >> i don't know if i would describe them as hyper data-dependent. they have all come in of expectation. we put out our 2025 outlook several weeks ago. he actually think cpi ends at 3.3%, almost a full point above where the street is. we do believe, and therefore you can imagine we dial back rate expectations as well. so we had an early december and then one more for next year. but if you back out of this whole thing, we've raised rates

520 five basis points in the cycle. then we cut 100 basis points today. we are literally back to where we were in december of 2022. we raise 123, we cut 124. in december, inflation was 6.5%. powell steps to the podium yesterday, he was a little bit of the grinch but he might've actually delivered a holiday present to investors because you take some of that froth out of the at when markets, we still have a 6600 target next year. we think there is opportunity but we are cautious in the very short term. the rest of the year is going to get a little bit wieldy. jonathan: lisa has made the point reported, it feels like the easing has been compromised. does that not constrain this

rally in any way, shape or form? >> think about it. you've taken the short side down 100 basis points and the 10 year you've talked about all morning since the september 18 initial cut of 50 basis points, the 10 year is up 80 basis points. you steepen the yield curve meaningfully, that matters for equity markets. remember this. we are two weeks away from year-end. you step right into two weeks ahead of the quarter end, what goes away? corporate buybacks. you lose that buying power out of equities in the short term. at year-end, people are going to rebalance. they have to sell equities because it has been a meaningful year. that is at play. tomorrow is triple witching which is going to add volatility. and then the last, if you look at technicals, yesterday we

preached both the 20 and 50 day meaningfully in the same afternoon. that is substantial. it is a pay attention selloff yesterday afternoon. lisa: all i can say is triple witching it, i never understand exactly what that means other than it sounds spooky, so things could happen that are a little bit strange. i do want to get into different kinds of closing about of the contracts. jonathan: don't worry. lisa: what is the implication of it? nobody can ever give me a straight answer. just dripping with sarcasm, it is ok. let's move on. there's this question as you said rebalancing into bonds and stocks at the end of the year, and i wonder what the takeaway is from you that we haven't seen more of a rally at the long end of the curve. that to me signaled the people

are truly worried that the fed has lost control to some degree and that they cut even though they do see increased risks of inflation on the horizon. >> so let's unpack that for a second. a long end of the yield curve is a growth premium, the ebb and flow. if i say u.s. gdp in the fourth quarter is going to close and maybe after retail sales, maybe as high as almost 3.5%, and then take our expectation for 3.3% inflation, nominal growth is north of 6% in that environment. nominal growth matters because it is what corporate revenues and earnings are priced in. it doesn't shock us at all that the 10 year is at 453 this morning. in fact, we said rates are going to be higher next year. we think growth is stronger, rates are higher, earnings are higher because that nominal

growth. so we found ourselves a little bit out of consensus but we are ok with that and the markets are coming to us. lisa: at what point does this leave the dollar in a precarious situation? at a time when it has been climbing and pressuring all the other economies of the world. it said 108 or 107.9 this morning. everybody laughed at us because they said the dollar has already come to far too fast. i don't think it gets much above, but the fact that it stays there and just grinds on particularly weaker emerging markets does matter. that just really is hard on global economies.

it is meaningfully hard. what you don't want to have a strong dollar break or weaker emerging market. lisa: you think growth is going to outperform and you get good returns from equities. what concerns you now, it doesn't seem like there is a bigger risk to an upside surprise for inflation, or with the given shift in the fed that potentially there could be a downside shift to growth? >> the former. everybody wanted to talk about with incoming president-elect trump, a fiscal moment, bond vigilantes. the real surprise next year is inflation and some meaningfully higher. if you use the consensus of 2.4, we are almost a full point ahead. that is a game changer for how markets after reset from here. we are not pressing in that expectation. jonathan: topline revenue growth was decent. companies have pricing power.

is this the kind of inflation that would be different, have we reached a tipping point for pricing power for consumer price tolerance? >> not yet. that strong, nominal growth, it is going to be harder on consumer-based company is to put that pricing power in. i do think you will get it out of industrials, financials, those types of places, but the consumer discretionary or consumer staples, i think the pricing power is a little bit capped if not dead in the water. jonathan: that has got to be the big debate. if you get that inflation, we've lived with that. it is terrible for consumers, but corporations have pricing power. you saw that topline revenue growth and strong nominal growth reflected. do you get a repeat of that, or is this time different? lisa: this to me is the key question. do you get a repeat of the same industries or maybe in the goods sectors at a time when the services sector saw the biggest

inflation. that is one of the reasons this is been so difficult. different pistons of the economy are firing that create a money picture. jonathan: good to see you. airee christmas, sir. enjoy the holidays. equity features here by 0.8% on the s&p. let's give you an update on stories elsewhere this morning. here is your bloomberg brief. steve scalise since the stopgap funding measure is dead. the announcement coming after president-elect donald trump came out against it, threatening to oust fellow republicans who don't meet his demands. elsewhere the bank of england holding rates steady. signaling it will keep easing gradually in a 2025 despite a growing minority of officials advocating for an immediate cut in borrowing costs. and finally, formula one driver sergio perez is no longer with team red bull, after months and months of core results. he's not won a race since 2023.

max for staff and has dominated, winning his fourth consecutive title this year. lisa: all i can say is iv the football, you say the only thing is sec football and f1, and then we do a brief about f1. all right. jonathan: is that ok? lisa: it's fine. called a christmas gift. up next, an interview with the u.s. secretary of state antony blinken. that is just around the corner. from new york, this is bloomberg. ♪

jonathan: the opening bell, one hour 30 minutes away. equities higher by 0.8%.

first off, jeffrey's upgrading tapestry to buy, the second call coming from td cowan. that stock is up by 1.5 percent. and finally bank of america downgrading micron to neutral, that stock getting hammered. we don't talk much about it this morning but that stock is down by more than 12%. equities are doing better, we are bouncing back. a big one-day loss yesterday, the biggest on the s&p 500. the worst that day performance we've seen. absolutely stunning. the worst fed day performance and more than 20 years. lisa: you raise this question going into this. only one meeting we see bond yields, did we see the market selloff so far this year during a fed decision. this time was different and boy, it raises this question of does this signal a real shift, or is

this simply a market that got upended at a time where there was a bit of froth and not a lot of liquidity? jonathan: we've got an important conversation coming up shortly. standby for that. i think we spent a little more time speaking about the federal reserve. this has been compromised and i think that is what really spooked this market yesterday. the very beginning of the news conference when chairman powell was asked why can't interest rates -- why cut interest rates? you've rate the outlet for growth, for inflation. why cut interest rates at all today? and he said it was a close call. and then when you dig deeper, you start to find out things like some people include the policies of the income he did ministry, the uncertainty around them, and some people didn't and you start to wonder what the forecast would look like if they all did. but with the forecast be for interest rate cuts in 2025? lisa: there are a lot of questions about how fed chair

powell handles dissent, handles the idea that we are not necessarily seeing any cohesion with respect to the scenario analysis, the modeling, or what people think and expect for next year and that of creating a lot of uncertainty in markets that have equal uncertainty. so i guess my question is why did the market selloff so much? was it because of the confusion, was it because they cut rates at a time when they are still worried about inflation, or was it the incorporation of theory from the potential trump administration? jonathan: to work out where you've go -- where you are going, you got to think about where you're coming from. we were talking about 12 days, now 13 days of negative breath on the s&p 500. just one part of the stock market doing the heavy lifting. you've seen the moves in the stock market and crypto, stocks like tesla, single names with massive moves over the last month. it doesn't take much to spark

a big unwind. you set yourself up for failure when you don't speculate and then you have to put out a forecast a month later we you have to speculate and guess. i don't think it's an easier in january. i don't think it gets any easier at all. as you heard a little bit earlier on this morning, people are fired up to invest in the united states of america in this economy for the next year and beyond. never mind what that means for inflation. what does that mean for growth? lisa: a lot of people are upgrading that and what esther george said i thought was really telling. it is not just about what the potential policies would do, it also has to do with where we are coming from and how much inflation is already in the system, and that is the biggest key. the inflation they are recognizing already being in the system heading into a potentially expansionary moment. jonathan: compared to where we were 12 months ago looking out a year.

and we had the median year-end target on the s&p, and then closed north of six k in the last few weeks, and now everyone i think, i sense there is this real career risk associated with being bearish for 2025 which is why we basically have the average target on the s&p, next year 6600. no one wants to miss it to the upside. that is a big change. lisa: but it included the tailwind of a fed within easing bias. if that gets removed, how much does that change the outlook for next year? that is what for a hot second people were evaluating and to me, i'm curious to see if this lasts. you can say low liquidity, but can we really say that if it continues into the beginning of next year? jonathan: let's get you that conversation. >> welcome to the audience mr. secretary, thank you very much for being here. there are many ways we can go

here, but let's start with syria. you've described this moment as one up with promise and peril. you have it seems like a defective government that is a defect -- designate a terrorist group and the u.s. has been in contact with hds. i know there are other groups operating as well, but what have they set about how they might govern if this is how it all shakes out? >> full we for them say is positive. the question is what they are actually going to do. we brought to get the country some region last week. turkey, iraq, the gulf states of jordan, egypt, european parties. and we came together to set expectations. what are the neighbors looking for at this transition takes place in syria? and we all agreed we want to see something inclusive, that respects minorities and women, that deals with any chemical weapons that may be remaining in syria, at the ally with isis or any terrorist group and the reason that is so important is

we want to make it clear to all of the emerging authorities that the recognition that they seek, the support that they seek and need from the international community, there are certain expectations that come along with. we've heard positive statements coming from the leader of hds but when everyone is focused on is what is actually happening on the ground. are they working to build a transition in syria that brings everyone in? if they do that, and if they meet some of these other tests that the international community is looking for them to meet, that i think you can see something very positive. and here is what it is. for the first time in decades, the people of syria can go forward without a dictator, without a terrorist group dominating their lives, without one sect or one group running things at the exclusion of others. and without foreign power. that is the opportunity, but it really requires other groups that are there to move forward

in this inclusive way. >> you said that the u.s. wants to help and i look at this country with a love of sanctions that have been in place for decades on syria. senator chris murphy of connecticut has called for a temporary suspension of sanctions. is that something you would be amenable to and without the effective and having more engagement with what may be this new government? >> we're are looking at all the sanctions not only of our own, but the united nations has sanctions. i think what we need to see is actual, concrete steps building an inclusive non-secretary and government, a transition, eventually getting to an election. as we see these steps taken, i think we will be able to respond. others will be able to respond. that is what we would like to do that we need to see concrete action, not simply positive declarations. >> for chief diplomat said he said in a senior at present it to talk to this government.

that something that he would want to do given the terrorist designation? >> i can tell you we fit in direct contact and we are also looking on the ground syria. it is important to speak as clearly as possible, to listen, to make sure we understand as best we can where they are going and where they want to go. we will be looking at pursuing that in the coming days. >> has been a lot of speculation that a cease-fire deal could come together when president biden spoke about the deal between israel and hezbollah. he was asked you think you can get a cease-fire deal by the end of your tenure? so he is hoping and praying. is there anything that has happened gives more ground for hope and prayer going forward here? there is. the reality is that we should logically be able to get this and i say that with all the caution that comes with that statement because we've been very close before and we had these losing the football

moments where you are just ready to kick the football and lucy pulls it away. but what has changed is this. hamas note that the cavalry is not coming to the rescue. for months and months we hoped it would get a wider war with hezbollah, with iran. coming and then creating more problems on more fronts and helping hamas. we now know that is not happening. they know that is not happening because of the very important work that was done without and with others dealing with the unprecedented iranian attacks on israel, delimit has full of. so i think that has concentrated minds among hamas on the need to complete the deal. having said that, it is always incredibly fraught and it is really hard to get decisions made. it is hard to communicate. for all of those reasons, even as close as it is, it could still move in the other direction. but we have all been fanning out, working with all of the different partners who can make a difference and may have some

leverage with, communications with thomas. whether it is qatar, egypt, turkey where i was just last week. the fundamental question right now, is hamas finally prepared to say yes? and if it does, we get the hostages back. we get a cease-fire. we get an immediate dramatic improvement in the lives of palestinian children, women and bend. we've been caught in a crossfire of hamas' making. if they really purport to care about the palestinian people label say yes and do it now. >> let me ask you about that horrible crossfire and something you've written about, the fact that millions have been displaced, tens of thousands have been killed, gaza has been reduced to rubble. it may 12 trips to the region. how much regret you have that a sustained level of medicare in a hasn't made it into gaza over the course of this conflict?

>> from day one, we tried several things. to prevent this war from going wider because if that happened, if other fronts opened up, these other groups, more daft, more destruction and it would probably prolong what was going on in gaza. and three, to do whatever we could to make sure that people in gaza were getting the assistance they need, the protections they need. and we've been on this virtually every single day and we've seen moments with more assistance is getting through. then we've seen moments where there is the ebb and flow. this has a dramatic effect on the lives and livelihoods of people in gaza. the last week for 10 days there has been noticeable improvement, but we seen that before and we've seen it fall off. the best way to finally deal with this would be to end the conflict, to get the cease-fire, to get the hostages home.

because you have an environment that is unique. you have a population that is trapped in gaza with nowhere to go. in most other conflicts, people can become refugees. that is not a good thing but it is better than being caught in the middle of a hot war. you also have an enemy that is fully enmeshed with the civilian population, living in and under apartment buildings, schools, hospitals. that doesn't obligate at all the responsibility that israel has to try to ensure that assistance gets to people who need it, and that people are protected as best possible. we've been pushing on that every single day. we've also seen what is possible if there is real, sustained focus on this. there was a polio vaccination campaign to make sure that little children in gaza got these vaccines and it was very successful. until there is an end to the conflict, what we've been trying to impress upon the israelis if they need to bring that same focus in a sustained way on

getting assistance to the people who need it. >> the last question about the transition that is underway, you said you want to pass the baton so they can get off and running. forgive me, but it does seem like they are off and running. you have trump meeting in france with president zelenskyy, president macron, prime minister trudeau in florida. does that complicate the work that you are doing, having that sort of separate voice, separate foreign policy for lack of a better word in the region while you're trying to do your work? >> there is one president at a time, one administration at a time that we are in very close contact with the incoming administration. >> we used to talk about the logan act. do these feel like different circumstances? >> they said we spend in very close contact with the incoming ministration. i've spent a lot of time with senator rubio and jake sullivan, national security advisor. michael waltz, his successor. we had very good conversations

and we are trying to make sure we are as coordinated as possible so that they know what we are looking at doing. i want to be able to handoff to the incoming administration the best possible hand to play in all of these areas, in all of these challenges. the world doesn't stop just because we are in a political transition. it is also normal that countries around the world want to hear come -- from the incoming and ministration what they can expect so they can get ready for that. as long as we are communicating closely, which we are, and as long as we are working to try to make this handoff as effective as possible so they can get moving on the run, because there is really no time to wait, then i think that is a good thing. on the middle east, we've been working very hard to make sure that as best we can, we actually start to implement plans for a better future in the region, or if we don't have time to fully do that, to be able to hand them off. not just getting the hostage and cease-fire deal, but having a

clear plan for what follows so that there is no vacuum that hamas can refill, that israel can pull out, and you can have gaza stand for its people. administration, security, reconstruction. we have done an extraordinary amount of work carrying through it president trump started with the abraham accords to get peace between israel and saudi arabia and those plans are there and are in place and ready to go. we get an end to the conflict. we've done a lot of work on but a pathway to a palestinian state would look like. at some point they are going to have to be ready for that conversation. all of that is ready to be handed over to the new administration and hopefully they will carry the ball forward. >> you mentioned that normalization deal. there has been reporting that we are close to a breakthrough there. is there any shedding light on where those conversations stand today? >> on october 10, a year ago,

saudi arabia and israel to -- and of course that trip didn't happen because of october 7. but even with gaza, we continue these conversations and this work. and in terms of the agreement that are needed between the u.s. and saudi arabia, they are pretty much ready to go. and that would've then triggered the normalization between israel and saudi arabia. but two things are required to get that done. one is an ending to the conflict in gaza, at two is having a credible pathway toward a palestinian state. all the work has been done and hopefully we will get to that end of conflict in gaza. they will have to engage the conversation on answering the palestinian question, and if that happens, this transforms the region. you have israel that is integrated in the region. there's a common security architecture to deal with iran.

we saw that, something we put together. when iran attacked israel in an unprecedented way. we participated in israel's active defense and brought other countries including countries in the region into that defense, so you can see what is possible in the future. but it requires an ending to the conflict in gaza and it requires moving forward on the palestinians. >> thank you very much. >> it quite a handoff. two hot wars on the global stage and the most fragile geopolitical backdrop in decades. that is quite a handoff to leave behind. lisa: and there is a question about what the path forward looks like and what happens in the next month as we sort of have this transition process. jonathan: let's turn to the economic data. moments ago we had economic data in the united states of america including jobless claims. for the latest, we can bring in mike e. -- mike mckee. >> you could talk how you want

about overseas situations but the u.s. economy is still the envy of the world. the second revision, third release, 3.1 percent as personal consumption rises to 3.7% from 3.5%. the u.s. economy is in pretty good shape. initial jobless claims dropping back the two headed 20,000 from 242, a drop of 22,000. last week we said it was influenced by the thanksgiving holiday and that certainly appears to be the case. the philadelphia fed business outlook down to -16.4 from -5.5. we saw something similar with the empire index so it does seem we are seeing a bit of a manufacturing slowdown as new orders dropped to -4.3 shipments, -1.9. now everybody wants to know what prices paid are. prices paid go up, but prices received fall in half.

it depends on which end of the invoice you are on, i guess. that basically is the story this morning. the u.s. economy in pretty good shape. the changes in the gdp number basically personal consumption, we also saw a drop the level of inventories to 57.9 billion, so that subtracts from growth. overall, nothing to complain about. jonathan: retail sales earlier this week as well pretty decent. s&p global services pretty decent. yields push higher. up another to basis points. up close to four basis point on the session on a 30 year. lisa: it raises the question because the selloff is disproportionately on the long end right now. i wonder if this is a bond market saying that this was a fed that made a policy error cutting it all yesterday, especially given the fact that

there aren't signs of weakness at a time when they themselves upgraded their inflation forecasts. jonathan: some people to share that view. we are looking at a bond market with levels we haven't seen since may. expectations for next year falling after yesterday's 25 basis point rate cut. there is no consensus, no conviction in this fomc, so trying to decipher that perspective as a whole is probably a fools errand. good morning. no consensus. does that make it pretty tricky for the chairman to offer any particular view? >> very difficult to give his view but not only is there not consensus from the fed about what is happening right now and what is going on, but where will we be in 12 months? no forecaster, public or private knows where we are going to be in 12 months. we don't know what policies are coming through, but we do know the direction of where things will go, and that is incremental

policies will be inflationary and probably drag on growth. and this is the problem for the federal reserve. it is not higher inflation. the fed is not afraid of high inflation. you hike rates or you keep them stable. they are not even afraid of weaker unemployment. what they are afraid of is a stagflationary environment and if inflation is headed upwards or is sticky for factors they cannot control, supply-side and the unemployment rate rises or there is weakness underline that labor market, maybe it doesn't show up in the unemployment rate. it is the big problem for the fed heading into the next 12 months. jonathan: what is the approach to that? >> they will have to make some big decisions. we heard from fed chair powell as the type of inflation we should look through, getting himself some optionality, but this is a fed that is going to have to ask itself questions over what type of inflation it does respond to. supply-side shocks, these are

not interest-rate sensitive. a federal reserve that talked a lot more about the type of inflation they would look through is one that might be airing on the growth side. for now they don't have to make that choice because it is really the inflation side of the picture. the growth side looks on the surface to be well. i wouldn't be surprised if the fed is also paying attention to the unevenness that exists under this economy. we talk about k-shape with incomes, shows up in that retail sales data that there's also that happening with manufacturing data and services data. this is not a simple economy, probably not a thimble policy response. this is underscoring some of that confusion from the fed chair. lisa: i don't have a clear sense of what the goals are in terms of how quickly to get inflation down to 2%, in terms of how to weigh both the inflation reading and the unemployment reading and what would trigger them to make a change. did you have a clear sense of that? >> they say it is ok if we wait

several years to get back to neutral, to get back to 2%, and that seems to be ok by then. one of the challenges is this unevenness that exists under the surface, the unemployment rate is going to stay mechanically lower even if the labor market softens. this is a demographic story and if we see deportation en masse, that could also contribute to the unemployment rate looking a lot better than the help of the underlying labor market. start asking questions about whether they are targeting the right numbers or at least expanding the number that they are looking at any more formal setting. lisa: does it make you more nervous to own risk, to buy risk, to take risk at a time of this much uncertainty and real confusion, or at least disagreement among fed members? >> it would make anybody nervous to take risk and what interest-rate policy would look

like moving forward. we are talking about the market reaction, the market has moved to two or one cut for next year, but how many business owners in the united states and globally incorporated a 10 year and we are incorporating the idea that rate hikes can become part of the conversation. we don't believe that this is part of america's planning and more importantly i don't think it is part of the globe's plan because let's not forget this week we have china yields collapsing, three out of seven g7 countries have governments that went through sizable periods of problems and we have, as you noted, really serious you political fragility. this is not a global economy that can withstand 4% to 5% rates the same with the u.s. economy can. they are not in a same position at the american exceptionalism. >> i love your thoughts on this home debate.

ahead of this decision, governor waller came out and said the message for the governor. i was pretty confused on some of the commentary in the news conference. >> there is certainly this concept of short-term and long-term neutral. i think that is really being fueled by the surprisingly massive amount of fiscal spending. in the general consensus i think we are downplaying just how impactful the most amount of spending per gdp that we have seen outside of a recession in american history. this is massive data. when we talk about american exceptionalism, and a lot of other countries could be growing at 3% if they were spending as much as the u.s. was spending on the government side as well. that is really distorting short-term neutral but there's a lot of concepts being thrown around in my sense as i listen to this, this is a lot of trying

to find reasons why they can stay on hold. this is a fed that wants to stay on hold until they get some sort of crack in the data one direction or another. jonathan: always fantastic. thank you. january 10, payrolls. january 15, cpi. i wonder this debate will change all over again when we get these data points. >> probably a little bit because the data points that are going to matter i january 20 and 21st, maybe will be start to see the executive orders. everybody is waiting to see what happens with donald trump's fiscal policies. if that that decision and statement were on a milk carton, it would have an expiration date of january 20. jonathan: things could change a lot by inauguration and the changes to policies. we've all got similar questions. i want to know which policy officials did not include uncertainty for 2025 and what those median dots will look like

when they all start to do the same thing. lisa: especially given that one of the reasons they cut by 50 basis points was because the sahm ru was triggered. lsome of these linchpins have not held up to be the same kind of protective tools. what tools and measures are they looking at now, sort of like the legal constitutional tests that you use if you are on the supreme court. jonathan: you getting legal now? lisa: it feels very similar. jonathan: another drink, all right. morgan stanley with us around the table. don't worry, conversation for another day. let's talk about what you think changed yesterday after that news conference with chairman powell. >> which changed with that we cut rates 100 basis points here today. policy rates are now 100 basis points easier for the u.s. economy is stronger than it was a year ago with no sign that it is slowing down at the top headlines level. nominal gdp growth strong, real

gdp growth strong. we had to slow down the pace of rate cuts. how do you transition to that, taking the expectation of rate cuts going forward in one go, and the lack of consensus that the fomc suggested it was time to make that change. lisa: you've not liked long-term bonds for a while. you've been concerned about whether we are actually factoring in the inflationary types of pressure. do you like them even less now, or do you like them even more? >> i dislike them the same amount. 10 year treasury has got a 5%. that's when inflation was higher and worried about showing inflation to come down. they are in a better position today. we don't quite know why they are

doing it. is it because anticipating changes in the trump initiation policies or the concern that the economy is overheating in some sense, i don't really think that is true. it is taking a longer time to get there. i really think the current is just too flat and that the economy in a stronger-than-expected and policy rates are not likely to go much below 4% anytime soon, so you need some kind of term premium to get people to buy long-term bonds. lisa: when we look back on this press conference yesterday, when we say that it was a policy era to cut rates at all given the fact that they are talking about increasing their vision expectation, this basically concern -- confirmed the strength. >> this gets back to where is neutral, where is the trend growth rate? if this grows faster than 2%, i would say maybe they should stop now.

that 5.5% seems a high number. we haven't exceeded or gotten to 5.5 since the 1990's i think. it's hard to believe that the economy is that much different that they would need higher interest rates than that. bringing it down to the force seems equivalent to where we were pre-global financial crisis and in some sense a broad equilibrium for the economy given what we know. jonathan: francis was with us just moments ago reflecting on the rest of the world. what is going to happen with the global economy? chinese bond yields are nose diving. there is a real conversation about that economy falling into the same disinflationary chapter that japan entered all those decades ago. europe is really struggling. huge structural growth issues. em is battling with limited physical space in a world of climbing yields which just means higher yields begets higher yields and they've got a weaker

currency to go with it and a central bank stock into no man's land. what does the rest of the world to do again for this kind of backdrop and how much can you stretch that band before it just snaps? >> a couple of areas. you could offset it with that support growth, but that usually has negative long-term income implications that your standard of living could fault to support your economy. the other is fiscal space. germany has lots of fiscal space. germans don't like to use their fiscal space. so they could use that and the eurozone has fiscal space in aggregate but they are unwilling to use it. so will you use the policy tools you do have? jonathan: try to have their space, too. >> they do. we've seen the u.s. economy you spend money, economy through better. if the government spends money, pours money into the economy, things will be better. you have to manage that trajectory over time and some countries have more flexibly

than others. france has some troubles, so not everyone has that flexibility of the countries that do have the flexibility should use it. jonathan: that is the conundrum we've gone for 2025. the economies that need the fiscal space and want to use it can't. the economies that should use the fiscal space and have the space aren't. lisa: that is really going to be the tension setting up at a time when there aren't the governments in place to do anything because the governments are not functional. jonathan: canada, germany, france. we will set you up for the day ahead and catch up looking ahead to numbers from nike. we do all of that in just a moment. moment.

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jonathan: getting closer and closer to year-end, a few more items on the agenda. the week ahead looks like this. nike earnings after the closing bell. tomorrow, core pce and consumer sentiment. and on wednesday of course, markets are closed for christmas day. with nike earnings coming after the close, let's catch up with adrian. what are you looking for a little bit later? >> we're actually looking for a miss, but the title of our preview note was that this is the first earnings call where you are going to have the new ceo who had started mid-quarter with his first date on the job. but the fact of the matter is there is a lot of heavy lifting to do here. the dtc, direct to consumer, the digital channel is showing signs of tremendous promotion out of the and we've heard that from their channel partners as well as our own checks. lisa: how much are you expecting

to hear about it consumer that is able and willing to spend particularly in the u.s. renewed focus on the u.s.? >> what interesting here is generally holiday has been intensely promotional. 30% off, 40% off, even 50% off as we go into the holiday season. it started even earlier. i think i've been on before telling you that we've not -- we've moved from black november to black october two even the tail end of september. it consumer under duress, they started to grab wallet dollars earlier. so the interesting thing is i don't know if he would call it healthy, but the fact is that we are 96% employed and when ut is that consumer with a tremendous promotion, they've been annoyed that everything costs 25% more, so now they think they are getting value. so i think this is a very different reason for why nike is

under pressure. they are resetting the business, they are pulling product out of wholesale and they are liquidating it in their channel, that franchise management. jonathan: stock is up, looking forward to the numbers later. looking ahead to nike, seeing some big hits and some big mrs. in that space over the past month. lisa: there is that wallet share that basically running shoes had. jonathan: you sound like you know what you are talking about. lisa: let's get to the weekend. jonathan: let's get to the year-end. this do that right now. coming up tomorrow, one more day to go for lease and myself. we will catch up with san francisco fed president mary daly, nationwide, and subadra rujappa.

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katie: futures attempting to hold onto the rebound after yesterday's post-fed wipeout. i'm katie greifeld. sonali: and i'm sonali basak. bloomberg "open interest because quote starts now. -- open interest" starts now. katie: coming up, stocks staging a comeback after that hawkish fed cut jewel to global markets. wall street against goal, john stoltzfus, will weigh in. macron plunging this morning with weak demand for smartphones and pc