ira: the fact is the fed is chasing the market. the market was always priced for one hike when they said they were going to do three. now they are priced for less than one hike even though the december dots said they were going to do two. that is something that is likely to continue in 2019, that the fed chases the market down. jonathan: it seems to me that the federal reserve has a massive communication problem. you cannot have a chairman and a perception of the chairman that is very, very hawkish and than a month later, very, very dovish, and than a month later, terribly confused. i mean, those three things have stacked up in the space of around about two months. for me, when that happens, it is not the person on the receiving end of the messaging that is the problem, it is the person delivering the message. have they got a communication problem? noelle: they have been trying to stick to this data dependence. and if you think about it, a lot h'as notta -- data has not deteriorated in a significant way. that is why they seem a lit

the fed float this had market. it created this rally. >> we're going to find out -- >> on that happy note -- >> we're going to find out if we're ready to swim without the raft >> or we'll see who is naked. >> we'll continue this conversation after this quick break. here is what else is coming up on "the halftime report. >>> straight ahead, the big call on ge. we have the analyst whose note helped the stock rocket higher this morning facebook's next big problem. how bad could it be for the stock? "the halftime report" with scott wapner and the traders is back in two minutes >>> welcome back breaking news on facebook. washington, d.c., attorney general is announcing that he's suing facebook for failing to protect millions of users' data citing lax oversight and policies that allowed cambridge analytica to access data the call with reporte erers amo other people will start in a few minutes where they will have more details on this attorney general lawsuit against facebook facebook shares trading down about 3% back to y

the fed brought down the neutral eight of 2.8. >> exactly. >> there's a caveat to this, but the fed does the two hikes next year it's at its median neutral rate. >> what is neutral >> it's 2.8% is what they consider long run. >> they follow the market. they follow the market. >> let me just finish this. >> let's answer sara's question? what does that mean? >> i can do that in a second there's nine members of the fed who think the fed ought to go above neutral and neutral would be the rate that neither stimulates or restrict economic growth. >> steven grasso, clearly your view is he hasn't managed this well as relates to the market, whether or not that should be his primary aim but talk us through the key levels we were at the session high close to the decision. >> when you look back at the macro, long-term retracement levels, 2508 is the level that we want to pop above before the close of day today if we do not not do that, we fall below 2,40400, and i don't mean today or tomorrow what do i mean is your next long-term support level to rick's point, when you have a calendar where we have

caroline: and the fed themselves. scarlet: probably not good essay too much but everyone will be he probablytion -- won't be saying too much but everyone will be paying attention. taylor: it's all about the chipmakers for me. the nasdaq turns green and the broader -- and the broader tech sector up, but the chipmakers are still down. you see a broad divergence within tech focusing on the chip maker because the rest of -- a rest of the huawei cfo. he wally supplies were off as much as 45% on tuesday trying to make a rebound today. said the arrest could be a much bigger deal than even a ban on zte for some of the suppliers. we are all waiting to see how this develops and pay concerns. abigail: so much volatility on the day. pointsdaq 100 down two 5%, closing up 6/10 of 1%. reversal on the close. the question is, was it the capitulation bottom that slow down here. we take a look at the chart of the mesic 100, we have not seen capitulation. we can take a look at what that might look like back in 2016. -- 2015. the regular v

the fed sees a 2.3% gdp. labor markets. -- oilhey see a sign prices are falling -- feeding through more of the economy, they have to realize they are going to be watching. they think they are going to do two hikes. whole point is, watch the economy. in 2006.ou are this is what they are doing. rid of thatid, get idea. either hawkish for dovish. i would say they are cautious. >> is that the way you would put it as well? >> absolutely. nothing is carved in stone. at 2019, 2018 you had tax cuts at the top of the cycle. you will have wealth affects from lower prices. going torate sector is deal leverage. i could go on and on. next year, we are going to have zero growth or 1% or less than that. we will see that over the next few months developing. nothing is carved in stone and the fed is cape of all of holding or cutting rates in 2019 of holding or cutting rates in 2019. yvonne: what is the trigger to derail the fed? not exactly deterring them at the moment. in two more hikes for 2019 into the bond market, it is li

that is something the fed will gauge. ybe they can massage it with the dot plots, or the message of hike, but we are more data dependent. they could take pressure off the markets. yvonne: stay with us. , softbank's wireless unit tumbling on its debut. we ask whether the stock still has investment potentials. rishaad: how thailand and indonesia ended up at opposite ends of monetary policy. this is bloomberg. ♪ saying nations face downgrades and more pain from rising interest rates next year. there could be further cuts. asde-reliant country such thailand, taiwan, and malaysia remain the most vulnerable. setne: the bank of thailand to hike today for the first time in more than seven years. low,h slowed to a two-year the bank still expects the economy to expand 4% this year. let's bring back our guest and our chief asia economics correspondent. yetre not out of the woods when it comes to asian economies? rishaad: we are never out of the woods. >> still relatively robust. headwinds ande they are continuing to build. interestl

do you agree with the fed? do you agree with the white house that they have created an environment where we will see momentum and just kind of permanently stronger growth, or do you think some of that hope is misplaced? >> i think the tax changes were by and large a good idea. i think they did provide a cyclical boost to the economy. the bigger deal with the corporate rate reductions and their effect on investment. there was an initial boom and then more of an attenuation. is a fear in there a lot of business people's minds about how quickly to move, so i think it's a china situation were settled, you would see more but push from tax policy, who knows about china? >> big question indeed. what is the fed going to do in 2019? how is the economy looking to you given all the things we just talked about? >> i think the economy is in reasonably good shape the 2019. i think the probability of a recession outside of some unforeseen event is not terribly high. at the same time, the fed is looking at the china situation a

followed by fed chair powell's news conference half an hour later a warning from the other fed, fedex, that is, slashing it's 2019 outlook because of global economic uncertainty it pointed to a slowdown in europe and asia. the company also starting to offer buyouts to some employees and other cost saving measures fedex shares are down 8.5% today, their worst day in a decade and it comes after the ceo said the issues facing fedex are the result of bad political choices around the world he blamed tensions between the uk and europe over brexit, also talked about the trade war between the u.s. and china melissa, here is the astonishing thing, fedex is at 1.69 today, it was at 2.75 this year back in january, it's completely plunged and it's forward pe is 10.5. >> what changed in the past three months is what had analysts caught off sides and investors for that matter. fedex raised its four year outlook and took it down yesterday. it's the magnitude of the slowdown that caught investors by surprise. nobody guessed europe and china would be further weak thing. fred smith, you know him well,

that's not the fed's fault the market shouldn't have been expecting the fed to promise no rate hikesst one rate hike, and it did fall on deaf ears, some of the points that powell made. he said, again, as he did back in march, the dots are not a consensus. that's not the path that we see. what we see is in the statement. now, the statement says some further rate hikes that's over the medium term outlook. for all you know, that ends up being one a year we just don't know powell made an effort to try to insert, to stress the uncertainty around what they are going to do going forward. yes, it fell on deaf ears. i characterize this as tough love, right, the market shouldn't be pricing for disaster next year the market should be pricing for the good times are over. we just went through the year of tax stimulus you have absorbed the delta from that we now move into the payback period, very tough comps for earnings, tough comps for margins, global growth is slowing. you have to take that into account. the market needs to reset to some new equilibrium to a world where growth is not juiced by

tony: i think it is actually a little bit of those, because the fed is chasing the market. -- the fed has been chafing the market. we have seen them reduce their dots on multiple occasions. i think that is what we are going to see in 2019. the uncertainty is how quickly they will do that, whether they will tighten in the first quarter or delay that. i think they are being a little dogmatic around the balance sheet, so the market knows the liquidity in the balance sheet reduction is taking out of the market has been a negative and increased volatility. if the fed were to show some flexibility on the balance sheet, which would make sense for them to do, that would help quite a bit in terms of reducing some of the volatility in the market. so i think you are right, it is double-barreled on the rate and balance sheet, and i think you will see the fed continue to play catch-up with the market as they reduce their currently projected level of rate hikes and maybe modify the autopilot that the balance sheet seems to be on. jonathan: just to pick up the comments from tony, i don't want to dim

but we at the fed, the unelected bureaucrats at the fed are right. we'll see. ta on the other side of this break we've got the latest on jobless claims and the latest on the advance on it. we're talking about jay powell >>> we are just seconds away from philly fed manufacturing numbers and weekly jobless claims but quickly on the futures, we've got higher here on the dow but just barely. ten-year note, yields. and rick is standing by in chicago. >> survey says initial jobless claims moved up. moved up 18,000 -- i'm sorry, 8,000 to 214,000 so from 206,000, add 8,000, up to 214,000 even claims moving in a big historical path here they moved from 1.66 million last week. very low up to 1.866 million. yields aren't moving very much we take for granted we're not at low. but very much at levels quite historically on the low side dollar index taking a hit today. down two-thirds of a cent. that's not only lost the 79 handle it's on the sunny side of 96.5 the dollar loses ground. interest rates lose ground equities lose ground it's going to be very fascinating to see how

we do expect the fed to respond accordingly. has been very open and willing to respond, if it sees through the data. that is what they are waiting for in a significant way. corporate's are fundamentally solid. they are at and in position where they can stop their share buybacks and pay down debt. as long as these things are gradual, as long as we don't see a massive slowdown in growth, we think they will be able to absorb both the fed and any slower growth trajectory. jonathan: this is an important point of tension. a disconnect we have with the markets economy here in the united states. when it can become real. the fact of the matter is when they should be or should not become a spread year wide, the fact of the matter is for leverage loans, when they come back to the market, they will be paying higher interest rates. can it become real? can the technicals become fundamental? tony: they can. we don't think they have reached that level. at some point, there will be a pretty good entry point. the fundamentals, we think, despite t

ira: the fact is the fed is chasing the market.y were price for less than one hike even though the december dock said they were going to do two. that is something that is likely to continue. jon: it seems to me that the federal reserve has a massive communication problem. thatannot have a charm and is very, very hawkish and than a month later, very, very dovish, and than a month later, terribly confused. happens, it isat not the person on the receiving end of the messaging -- it is the person delivering the message. have they got a communication problem? noelle: they have been trying to stick to this data dependence. nott of the data has deteriorated in a significant way. that is why they seem a little bit confused because financial conditions good start to feed in to the data. but they have not seen that and a significant way and that is why they are not backing down and we do not expect them in the near term -- only calling for two hikes in the next year. companies are in a spot to absorb those two hikes. the market is pricing in

they look at the fed. they also look at qe. lf, being in italian, he was in a difficult spot. this was the biggest political headache. also has economic repercussions. it is a huge country with a huge debt pile for europe. tom: thank you so much. bring up that data screen again. this is incredible. those are lower yield. look at that move. nine basis points. seeds, -- andrew, these are join our miss -- these are enormous moves. it is like a global yield compression. andrew: it is a pretty substantial move. i think there are two things going on. i think specifically what we are seeing in italy and may broader in europe is an expression of that old saying that happiness equals outcome minus expectation. the expectations toward the euro zone and italy towards investors where love. i think the fact that -- were low. i think it is colliding with the fact that investors were cautiously positioned in italy. they were bearish. that makes these moves easier. what we are seeing more broadly in yield is the bond market correctly adjusting.

you cannot audit the fed when ron paul says audit the fed he's referring to the fact that if you were to audit the fed it would instantaneously lose one hundred percent of its value because there's nothing in there if it's exposed to the light of day it loses one hundred percent of its value because there's no collateral whatsoever in the fed is complete and utter artist poop the reason why i bring this up is since the election all sorts of data is coming out in the united states in europe in around the world what you're seeing is that the democrats hillary clinton won the votes of all the city dwellers all the suburbs very close to the city near suburbs to the city the people who overwhelmingly went for trunk or rural the same thing you're seeing these protests the yellow vests protest as in your in france and that is rural versus metropolitan the same thing happening and i think hillary unwittingly touched on it what she called. the city dwellers who vote for her they're the winners and she said those people out in the countryside in the rural areas are losers and they're dead

they are pushing the fed back to the wall.he fact that you have december and then after december, one priced in and cuts in the 2020, basically the room for error is zero. the market has moved too much and the risk reward is not to bet against the fed. subadra: i agree with greg, the market has moved too much. the question is, when you fade that? jonathan: would you trade it now? subadra: no. i think i would wait to see if there was meaningful change in the dots. the key indicator i look at his inflation expectations. inflation expectations have declined from 210, 220 this year to 290. it has not declined to much below that. inflation is still holding up so we have to see what comes out of the trade negotiation and be patient over the near-term before you change your strategy. jonathan: but in the meantime, there is so much care out there, to reprice inflation expectations. a lot of that is driven by energy, but to reprice the fed as well, i'm struggling to get my head around it. are you? colin: not as much. we are not that fa

and but you were in the fed system and what was the state of mind among, you know, fed people, central bankers in general, during the -- during the really extreme crisis, where you -- were people sort of saying, oh my god, it's the oen of the world, or were people fairly confident they could get through it? >> i was certainly saying it was the end of the world. >> okay. >> and most of the people that i dealt with even if they were calm and thought they had to carry on, i did have this -- the world war ii british poster in my office. >> oh. >> someone gave me the -- >> "keep calm and carry on" poster which i found reassuring and i found it was helpful. when people came into my office and we had to confer on things. because everyone around me felt, well, and most of the people who were managing this, bernanke and others were this w others, this was the end of the world. >> okay. >> we were staring into the abyss, no doubt about it. and this could clearly be an economic disaster that had the potential to make the great depression look like a mild downturn. >> oh, wow. all right. so the se

i guess you could bring the fed into the question.eriously is the fed affecting it, but most are liking emerging markets right now because they have been priced so far down. salman: i think you are right. one of the major reasons i like emerging markets are we see valuations less aggressive than they are in other markets. there has been a lot of growth damage already priced in. the damageequities, at one point was pricing in more than one percentage point. with the fiscal stimulus in the pipeline and a variety of monetary policy moves, i think there is potentially a positive surprise. not huge, but positive surprises can come out of china next year. justify some of these very less aggressive valuations you are seeing on markets. anna: salman ahmed talking china and emerging markets. he stays with us on the program. looking at the sector picture, this is the stoxx 600 broken down with the grr function. as a whole, down 1.4% and there is not one sector in positive territory this morning. the biggest losing sector, basic resources, techn

just today, after president trump tweeted at the fed to back off the quote, 50bs, the fed showed it was wearing noise-canceling headphones, not listening to that, saying it will continue the unwinding of its balance sheet at the same pace of $50 billion per month that it had been following. powell said it is serving its purpose despite president trump's protests. now, the decision, the one that came out at 2:00 p.m. eastern, just a flat decision moved markets immediately. you can see on the intraday picture here the dow is near session highs just before 2:00 p.m. eastern. can we put up the intraday? we saw a spike of about 285 points to the upside, then it climbed even higher, up another 90 points, but then almost instantly reversed, falling in the 2:00 p.m. hour down 67 points and at this hour, you can see it's only gotten uglier for the bulls. we do have the dow down 349 points. overall we have seen a near 900 point swing so far in just the last hour and ten minutes. the ten-year treasury yield went skydiving, falling to its lowest point since may 30th. right now you have it at 2.76%.

>> i think it's an issue whether it's the decision by the fed, the policy decision by the fed or whetherstrong selloff -- hang on one second. the fed policy or bad communication or whether fed chairman jay powell lost the trust of the markets it could be there's no convincing markets on the value of anything but a forecast for no rate hikes and an immediate halt to reducing the balance sheet is the right policy but the fed is failing to convince markets that the outlook is brighter than the market seems to believe second that higher rates are best for the economy in that context and, third two rate hikes are a data-dependent forecast, not a promise. >> i think from this point forward we're going to be letting the data speak to us and inform the outlook and inform our understanding of what would be appropriate poll issy so there's a fairly high degree of uncertainty about the path and destination of further increases. >> powell took pains to describe that uncertainty you can see in the chart, the number of fed rate hikes it forecast four in 2016, the economy ended up weak. in 2017 the eco

it is, however, pricing in fewer hikes than it was and they expect the fed to do the same. g fed common kaentary indicates that y are having a rethink how much rethinking or how much rethought because they've probably done it already here's the outlook of the fed from their last thing. work with me on this >> a lot of numbers on there >> fewer than two hikes. four officials at two hikes in next year. assuming they go up in december. four with four hikes and one with five hikes in there >> i don't know why they bother doing this it's like a coin toss. >> i can't do this, but i expect the whole chart to move to the left the average there is three i think we'll get away with an average of two and maybe even a little bit less. >> less. >> that would be a big move. that would be a big rethink. instead it is just a rethink >> from very d-- >> okay. and you think two is moving to two is priced down come on. >> i think, i think equity investors are saying two and they're only saying the back half they're not expecting anything in the front half. that's way up in the air when you're

should do, what the fed could do, what the fed may need to do, liquidity addiction e-mails, textsny of my sources, it's always for liquidity addiction. harken, it goes back to 2013, ben bernanke that's when we had the taper tantrum. the taper tantrum put in place in my opinion a series of barriers that the fed is very nervous about. when the market had a hissy fit, a tantrum, whatever you want to call it back in 2013, when the notion of balance sheet reduction was front and center and we were going to stop buying and quantitative easing would end, that tantrum made ben bernanke stall out the road he was thinking about going down. beyond that everything in my opinion changed. i think the fed needs a third pillar they need some way to deal with addictions by the marketplace because the marketplace really needs a 12-step process to finally break away, stand on its own two feet we shadow box this issue oh, we have to forget guidance but all of that basically is about trying to talk the market through its addiction. and, when we think of these tantrums, and there's going to be and have

i want to take a look at the fed balance sheet. there's a lot of talk about this and whether it plays a big factor in the selloff. at what iske a look happening since the fed wanted to wind down the balance sheet and the decline you have seen in the markets since then, it gives you sense the market may be trying to tell the fed that enough is enough. is time to stop. when you take a look at what powell said, maybe it's the fed sending a message to the market. scarlet: thank you to our markets team. let's bring out bob who joins us. we talk about the catalyst and we did not get it from the fed. jpmorgan does not report earnings until four weeks away from now. what happens in the meantime? where do you go to hideout? is a telecoms? -- is it telecoms? telecom in your portfolio makes sense. when you get yields of five and a 6% in an environment where there does not seem to be a ,ownside limit to the markets defense for sure. you also look at companies that have pricing power, good free cash flow characteristics. they are the stocks that

the fed has to remain independent. r us, clearly the chairman has mentioned on several occasions they are not influenced politically. we don't want them to be influenced politically. they need to do what they feel they need to do. they have a dual mandate. the fed has to try to maneuver it within a $20 trillion economy, try to find tune that economy. -- fine tune that economy. david: how concerned mike the markets be at the prospect of president trump meeting with chairman jay powell? there are reports to set up a meeting for them to exchange views on monetary policy? scott: one would hope any president, not just president trump, but any president would from time to time have some contact with the chairman of the federal reserve, meet with the chairman because the president wants to understand from our main monetary policy people what is going on, what is there view. right now i think a potential meeting has taken on a different kind of light because of the president voicing his opinion, which i think jay powell as -- i

the fed has really done its job. 're sit ngting in a situationo where it's come back the more than full employment inflation is close to where the fed wants it to be the fed has had a steady hand. so it's really not the problem here that the problem is just a lot of uncertainty about a whole bunch of issues that really are moving out of the fed's control. unfortunately, many of these are coming from the president. the issue of a trade war hugely important because it's mobile supply chains some of the instability in terms of geo political issues because of decisions that have been lately this is really spooking people and the market was at high level sometimes and if the market comes down, it's not that unusual. happens all the time really no need to panic. the only big problem is that if people start to make things very political, that can create problems for the economy in a way that's really unnecessary. >> in fairness to the president sh, he's not the only one by the way who is critical of the fed saying that they

we see the fed hiking in december and another in march. actually think the front and can selloff, and the long end of the curve stays flat. i am not a bull flattener, but i do like a flattener. jonathan: guys, you going to stick with me. coming up, we get to the auction block. the u.s. leverage loan market showing signs of sputtering. that is coming up next. this is "bloomberg real yield." ♪ ♪ jonathan: i'm jonathan ferro. this is "bloomberg real yield." i want to head to the auction block now. u.s. treasury sold more than $280 billion this week. i want to focus on the $39 billion auction of two-year notes. director bidders came out and forced demand. dealers received the lowest amount of notes since january. elsewhere, in u.s. investment-grade, there was a bit of a bounce back. wednesday saw the most pricing since november 7 with 10 borrowers, and a total of more than $13.5 billion sold. leverage loans, offerings are getting pulled at the fastest rate since july. including deals from sorenson communications and perimeter solutions. still

if the fed loses money, it is on the hook politically. janet yellen: people worried that we might be on the hook politically, and we were doing something that was in many quarters a very unpopular thing to do. paul krugman: i'm going to skip ahead on a question. at the things ,eople said about the fed including about you and your policies when you were chair. nothing makes people crazier than the notion that easy money can be a good thing except for criticizing bitcoin. sniping overstant inflation that never happened, claims that you were playing politics, and i was going to say, how much did you feel under pressure, and do you think that fed policy was affected by external criticism? it sounds like a little bit of the second part is yes. janet yellen: so, yes. margin, i think that was something that concerned people about pushing asset purchases a lot further. it was a worry that they had. paul krugman: so in effect we are saying that the people who hold ben bernanke over the coals , saying he was debasing , the open letter from a bunch

we are waiting for the fed decision. t rally in treasuries continuing. that has seen the 10 year yield dipped below 2.8% earlier in the session for the first time since may as trump calls for a cause -- a cause for fed tightening. $46 ark crude higher, barrel of holding the overnight slump we saw when the contract felt almost 8% in the near exception. energy players are falling across the board. when it comes to stock movers of note, keep an eye on softbank corporation. 10%.s falling as much as softbank group is the biggest drag on the benchmark. investors likely questioning why this ipo was allowed to go ahead under such market conditions. and chipmakers are also under pressure as micron plans to cut on softer sales. pharma falling on a nikkei --ort that profit from we probably fell 13% on a yearly basis. movers of note in sydney, cheese falling the most in years. reduced milk supply. they expect the airline to benefit from a robust holiday season on higher ticker prices. aussie banks are climbing as a regulator in austr

the fed still went. s up to the point which you weigh economic conditions versus financial conditions. right now economic conditions are perfectly fine. the question is whether the volatility in the markets will filter into the real economy. i don't think we are at that point yet. amanda: what would be the data point you are watching to see if that is happening? yelena: we will see it in consumer spending, consumer confidence. right now consumers are happy that gasoline prices are going down. it could not be a better time for the economy to see this decline in oil prices. it is a perfect gift for the holiday season going in the next year. -- going into next year. amanda: stay tuned for a special coverage of the fed decision coming up in just a few minutes time. shery: let's get a quick check on the markets. stocks higher with the dow and the nasdaq gaining for the second consecutive session. we are expecting a dovish rate hike, the investor expectation out there for the fourth rate hike of this year. ever

he says that's the message to the fed right now. don't hike rates. think of the st. louis fed. he is a fed official saying we have a flat yield curve. it could invert. this is not a good idea. message to the fed. bloomberg economics though, the voice of the consensus still. you have a strong economy. it will continue to grow solidly next year. inflation is close, a tight market could push it higher. that's why they can and should raise the rate one more time. bill rhodes, back to you. i think i know who you agree with. let me ask it this way. does a side just pause once and say what happened after the global market had so much trouble and the global economy is slowing? bill: i predicted early in the year the fed would go four times and i think they will. they may pause for a while at the beginning of the year but they may take one more rate over the next few months. that's what janet yellen said a month ago or so. one of the things that concerns the fed is that they want to make sure that they have enough ammunition in case we do get into a recession. and this is a problem of t

et, the fed has been saying it. look at the clarida, if you look at the last few big powell speeches, it has not come up here and they have not raise the -- it has not come up. they have not raise the topic. it has been taken as something in the background that was not axiomatic, not regarded as something by the fed that they cared about. vonnie: let's take stock. the dow is down .6%, the 10 year yield is at two point 76%. markets have called. -- markets have calmed. john: they have not gone into reverse. we are in a very strange if you are less inclined to believe the fed is hiking than you were before and if you think they are going to than youg more bonds thought before, bond yields should be going up and not down. vonnie: john john authers, thank you. i want to break in because we want to get to the department of justice. here is ron rosenstein. >> this case is significant because the defendants are accused of targeting and managing service providers. to store firms trusted data and intellectual property and oth

the fed likes to parse their words. when the headline inflationary right goes down to 1.5 you wonder if they can tight jennie more because they have this 2% belief or talk about transitory. we're down in the mid-ones but transitory because we're looking at core. it's a very tricky time. i don't envy jay powell at he has a very difficult situation ahead. it's t the correlation of the world stock market and the bank sheets of the bigs are remarkable since they started quantitative easing it went up exactly the same. when the balance sheets took a pause on expanding the stock markets globally took a pause. then thanks to the fed's embarking on tightening the cumulative size on those big four balance sheets tipped over. what happened to the global stock market it tipped over starting on january 26th but now the ecb seems committed they are going to stop buying bonds and start tightening this is an extremely important event if, indeed that correlation which has held up so beautifully even this year continues to hold up, it me

the fed takes center stage with a dovish hike. maybe not as dovish as the markle hopes for. >> it is not really a bad thing. >> it is the exact circumstances meeting by meeting. >> central banks of japan and england stand tight on policy. people --oderate sinks and its first day of trading. china celebrating 40 years of reform with a message of resistance. >> very few mentions of the private sector or the market forces that have come into play in the last four decades in china. >> as global markets stumbled towards 2019 duncan miller shares exclusive insight into what is ahead. >> if you look at indicators i have historically used in business they are not quite red but they are amber and they are sending off warning signs. >> that is straight ahead on bloomberg best. ♪ >> hello and welcome. i am taylor riggs and this is bloomberg best your weekly review of the most important business news analysis and interviews from bloomberg television around the world. let's start with a day by day look at the top headlines. on monday u.k. prime

the fed's next move. this is a new thing. 88% said the next thing the fed's going to do is hike. at 12% of our respondents. lower rates and they think that's going to happen if it does happen, average response is october whereas the next hike would come in april. so this is not a big number but when you have a change like this you got to pay attention 12% say there would be a rate hike the other thing that's happened here is take a look at the lower forecast for the fed we were looking at 3%. now it's 2.7% for 2019 and 2020 and the terminal rate has come down by the way, the fed's own forecast tomorrow will i expect to show a decline, as well how about will the fed raise above neutral? take a look at the polling this year 62% back in june thought, yeah, the fed's going above neutral. it will act to slow the economy. november 55% that's now changed about a third now say the fed will act to slow the economy so a big change by the way 57% also by the way, say the pace of the balance sheet reduction is just right. so they don't disagree with that but, tyler, there's been a change in

the fed is doing? trange world with a massive disconnect in central-bank policy. you have a fed that has to stay in pedal to the metal as far as the committee case in. seen to waver on increasing liquidity to push up asset prices. in the northern end of the region, the fed wants to raise rates. interest rate differentials between the states, they cannot technically do it because the impact of the aussie dollar would disadvantage exports and commodities. particular -- they're trying to [indiscernible] particularly down in australia. i know i sound like a broken record on the show, but they can't keep all three going at once. effective currency policy, currency controls, and keep it going. >> capital outflows. >> you can keep all three going indefinitely. long-term. with quantitative tightening, we were in uncharted terrain with qe. we are in chartered train with qt, are we not? there's no point in trying to charge it. >> no, no. it has been very telegraph to didstreet that the fed indeed expect to not ro

one person at the fed believes neutral is 2.5%. we are not just below neutral, we are just below the bottom of the range of where neutral might be. >> i am waiting for validation from the fed they have changed their direction. at the moment, it is not clear. jonathan: joining me around the table is the cohead of fixed income -- plus coming to us from edinburgh is luke hickmore. guys, great to have you. is next week's decision really that much in the balance? kathleen: it is not much in the balance because the market is expecting it. there will be a hike, but the comments will be dovish. the question is how dovish will they be in 2019? goshen: i think the markets completely reinterpreted anything by the fed. how about the fact growth has started to slow a little bit after years of being strong, and now we are going back to trend line? it is not either or. it is not that we're going to hike at all or we will hike five times. the fed should not commit because it should be somewhat data dependent. jonathan: you are saying this is a mar

how will made it clear that -- powell made it clear that that is not the fed's fall. there has been an enormous amount of people issuance. and regulatory changes affect market funds. even though the cost of funding has gone up, it does not mean cash is not available. the other problem for the fed, they are pulling off maturities -- securities as they mature. when you look at the debt 2019, some months you have a lot of securities, some you have very few. to would you adjust that take account of some change in the economy? very hard to do. it would rather let it run on autopilot. interestingly people are talking about what happens if and when there is a recession and the fed would typically respond with easier policy. does the balance sheet have any bearing on that? do they need to normalize that in the same way they normalize rates? michael: they don't need to come up but they want to. we have been under extraordinary policy for 10 years now and it is time to get to a more predictable way of running like a policy. the balance sheet according to we raise the, do balance

what are we supposed to do i said the fed has this modeling stuff. throw the model in the can you asked williams about this. >> i think the fed is humbled before the fates of what happens. i don't think it takes the market's view as a gospel. i don't think economists necessarily have it right. the point of view is the right one. i'll take everything i'll evaluate the probabilities around it. >> fair. >> the risk/return on the market, right, if it's 15x and i have everything built in -- >> part of the unease. >> all fair. people say i don't know what data you're looking at >> if you think the fed is inflexible, you are wrong. i keep saying the same thing >> you will never come on air again? >> do i listen to powell, williams or you? >> when you're in the band, do you listen to the bass player, the piano player or everybody? get the whole symphony bring it in, kevin >> we have to take a break >> he's a player >> take a breath. >> it's a good analogies >> i'm calm and cool >> there's a lot of confusion in the market >> we have to go >> i don't think they

i think that is a big risk given that the fed is focused on the data here. jonathan: what do you think the biggest issue is in terms of policy, the spread between the markets on rates and the federal reserve or the spread between the federal reserve and a balance sheet that they think should be on autopilot, and many market participants who think it should not be? brian: the rate policy is by far the most important. the balance sheet policy -- i know the market is fixated on that recently, but it has not been a big focus for a while. if you look at the balance sheet, it is still really, really big. we have only just seen a little bit of decrease if you look at the big picture. i'm not sure that $50 billion a month of rolloff is a big deal. i think the rate policy is a far bigger deal. jonathan: if it even gets to the $50 billion of max rolloff. this raises the question about the rates. are we arguing over 25 basis points, because that is the spread now next year? >> if we take the fed's forecast, they are telling you to the point on rate policy that there's