Fed Day: 'Bloomberg The Open' Full Show (12/14//2022)

Fed Day: 'Bloomberg The Open' Full Show (12/14//2022)

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Live from New York City this morning. Good morning. Good morning. The Fed decision just around a corner. Equity futures just a little bit softer. The countdown to the open starts right now. Everything you need to get set for the start of us trading. This is Bloomberg, the open with

Jonathan Ferro. Live from New York City. We begin with a big issue, investors looking to put together a year end rally with the bulls emboldened by soft inflation. It's Fed Chair Jay Powell. Coming up next, the Fed meeting with the Fed meeting a decision. We have the Fed announcement follows. What are we going to hear from share

power? We are seeing core and headline inflation move. No pound should definitely as we speak. Few encouraging news on inflation expected to go 15. Obviously, they can step down to 50 basis points, expected to downplay future rate hikes. Data of this nature allows them likely to do that. The focus is still going to be near term

when the Fed is going to do in February and they're trying to monitor how the economy is reacting to those hikes. It will all depend on how long inflation is going to be staying elevated. Sense of relief, but it's not over yet. Joining us now to discuss is JP Morgan's Bob Michael Christian Amani of Lafayette College alongside him. But first to you.

Does yesterday's inflation print change anything for the Fed today? Boy, I would love to know how many of the FOMC members went back and changed their terminal dot because they had a do over, I believe, until last night to do it. I don't I think on the margin, probably in the conversation. But the three things we're expecting is, one, to step down to 50 basis points to a terminal peak in the Fed funds rate somewhere around 5 percent. And for the chair to reiterate that, it's too early to declare victory on inflation.

It's up, up when it comes to the balance of risk, the assessment of the balance of risk from this Fed chair. Do you think he still commits to this idea that the risk of doing too little outweighs the risk of doing too much? No, I think it's far more balanced. And I think after today we're heading into a series of Fed meetings where, Jan, genuinely they will be data dependent. So they will look at the data.

Every meeting is in play, whether they raise rates or not. And we haven't had that for about a year. Christina, your take. Well, sir, I disagree slightly with Bob's assessment. I think

the balance from the Fed's perspective hasn't really. It has definitely changed in certain areas. But the one area that they care about the most, which is the labor market, it really hasn't. So if you look at supply chain, better

shelter likely to be better energy. Better for sure. But labor. No change whatsoever. And I think the last employment release probably proved that point for them.

So, yes, things are looking better, but right now they can't relent. And that's the message we are going to get today. So, Chris, let's talk about a terminal, right? Closer to five, a five handle. What's the difference between what they

signal and the dots and what you expect to materialize next year? Well, I think 5 percent is the right assessment. I think the strategy for them, because other things have kind of panned out the way they expected it to. Trying to get terminal rate up to 6, 7 percent at this juncture doesn't really make any sense. So their strategy and both from effectiveness standpoint and from a risk management standpoint has to be keep the terminal rate, would keep the rates up to the terminal rate of 5 percent and just wait and hopefully the labor market robberies. And if it doesn't, then we'll see what did what the basket market by what they're sounded today. This was out in Ruskin at Deutsche Bank. This quote here, the 23 median drop was

superficially bearish relative to the December 23 Fed fund futures, but not relative to market expectation for the adults themselves. If you don't understand that quote, here's this quote The market will probably also take the Fed's high rent. Twenty three top as a way of the Fed trying to signal that they do not expect to cut rates in twenty three. That's something the market will continue to view with skepticism. Bob, I would love your thoughts on this. This battle between a market, this

pricing in cuts and a Fed that's saying, no, no, no, we're not doing that. How does this play out? Well, I think it plays out with the Fed pausing some time over the next couple of meetings and leaving rates wherever that may be, somewhere between four and a half and five percent through year end just to ensure that they've gained some traction on inflation. And Krishna is right. The labor market is still very tight. Wages are going up at some point in time. The price increases, the sticker shock from that may just be normal and wage gains will compensate for that. The other thing on the horizon is a reopening of China and that should add to a lot of consumption.

So it is too early for the Fed to declare victory on inflation. So, Bob, let's talk about rates to you right now. For twenty two year, November 4th was pushing for a C. That was two days after the Fed last met its full rates yet. Bob, can we get back up to those levels at the front end? I would love to get back up there, but I don't think so. I think we've seen the peak in inflation.

We've seen the peak in rates. I think the market told us at four eighty the highest the Fed is going to get the Fed funds rate is for three quarters. The market's going to be right. Yet again, any kind of backup in yields you're supposed to buy? Krizner You heard that from Bob. We've seen the peak in inflation.

A lot of people agree. Have we seen a peak in rates? I think we have seen the peak in rates. I think the likelihood that the two year gets back to the low level or through that, I think the likelihood is that in the current environment is pretty small. I think it is working out the way the Fed expected it to work out, actually. So I think that gives them enough comfort to not take terminal read meaningfully higher in the normal rate is not going to be meaningfully higher to year.

And for that matter, even even the 10 year and 30 year can't really go too much higher than where they have been in the past. And probably don't touch those levels anytime soon either. Crystal, you more confident about the path for inflation or the path of growth next year? So the path of inflation, I think this is a unique cycle, so I would have liked to have said that half of inflation is pretty predictable at this point given all the tightening that has happened. But because of the peculiarities of the

labor market in this cycle, I don't think I can see that with a great deal of confidence. I think the likelihood of that is quite high. That's what the Fed is hoping for and that will determine what the path of growth is in the fourth quarter of next year. The reason I ask this is because I think the overwhelming consensus going into twenty three is resolve to pair to growth for the first half. But HSBC pushed back against that yesterday with Max Kenton as saying the following. We increasingly believe the widespread belief of a weak first half is misplaced. He went on to say the activity data is

still surprising to the upside. Both top down, bottom up expectations have been downgraded so much in recent months that it makes further positive activity surprises likely. Christine, what do you make of that assessment? I agree with that.

I think the likelihood, given both anecdotal and kind of systematic data that you can look at expecting meaningful slowdown in growth in the first half, I think is misplaced. We will see if we do see a slowdown in growth substantially. That will probably come in the second half rather than the first half. And therefore and that's a bit of a

challenge for the Fed because we know that the labor market is not going to soften. So they kind of you know, they have lost the narrative a little bit and they can't afford to lose the narrative even further. And that's why they will keep at least I expect them to talk about the S&P and the projections and keep harping on that in this meeting and even in subsequent meetings.

Bob, what about you? We've studied the previous periods of third rate hikes and we've looked at the last five. And the interesting thing to us is the time from the last Fed rate hike until recession at the top in four of the last five rate hiking cycles has been about 13 to 14 months. So those long and variable cumulative and lagged effect of monetary tightening, they do bite, but they don't bite in the next couple quarters. It takes about a year for them to bite. We think that moves forward. So we're with Krishna. That recession is the latter half of next year because the new ingredient this time is quantitative tightening. So what we're going to talk about what that means for spreads. A lot of people have been pretty relaxed

about how far credit spreads can break out on high yield. You haven't been one of them corporate for 26 right now. What are you advocating for at the moment? So for sure there there is a tremendous support for credit, and the one part of the credit spectrum we aren't that favorable on is high yield. We think in recession, high yield credit spreads go to eight hundred over and I'm still convinced they are. I'm hearing a lot that, hey, these companies have termed out their debt for the next couple of years. They're much higher credit quality. True.

But this time a lot of risk resides in the floating rate market. And there are three things to remember about the private credit and the floating rate market. One, for the first time, the private credit market is the size of the public high yield market. They're each one and a quarter trillion. The second is the credit quality of of the floating rate. Bank loan market is substantially lower

than it's ever been. If you go back to the financial crisis, debt to EBITDA was four times. Now the median is about five and a half times. And then lastly, this is where the refinancing wall is. Most of the debt that's been put in place in 2020, 2021 in the early part of 2022 was about 4 percent.

As these companies have to refinance the refinance, they get 9 percent. And these are the companies that are the lowest rated and least capable of affording that higher financing rate. Well, could you get our mind? Could you just take it one step further? Could you explain to all of us how the risk embedded in private markets that you've just described has the potential to bleed over into public markets into much more material way? If it bleeds over in a lot of ways as these companies go through restructuring, that's left economic growth.

Of course, some of the largest clients of corporate America are other corporate clients. So if they're having trouble with some of their suppliers, their vendors or their customers, they're going to feel that impact. And I also worry that as as you see these problems emerge in the private credit market, we're in the floating rate market. The the one thing you two did risk is going to be in the public credit markets.

Look, I've seen this cycle every single time in the past. The Fed finishes tightening rates. You have about a year till recession in that period. You have all this talk about a soft

landing. It's happened once. It happened in 94, 95. So we did have the soft landing in 95. And guess what? High yield credit spreads were at this level. So the market's pricing in soft landing. Christina Fund what? Let's say I agree with Bob. I think expecting Craig spreads. If we do see a recession, expecting Craig sprints will not widen in. Basically every scrap of credit category

is just unrealistic. And I think even expecting them to not widen much is very, very unrealistic. If the recession scenario pans out, Craig Springs, they're going to widen and then widen dramatically. I need to get to Mike McKay because he's down in Washington, D.C. We're a few hours away from that right decision from the Federal Reserve. And then it's the news conference with Chairman Power Mike McKay.

The focus for you, you know how Bob Michael Barr likes to give you a question before you even get to speak. I'm going to let you speak first, Mike. All right. But I'm looking forward to Bob's question. This is gonna be an interesting meeting because as you pointed out, this has been sort of the pattern for the last year. The Fed raises rates and Jay Powell comes out and gives a sort of hawkish news conference.

We're kind of at a show where the actors have been giving us the plot before we even get the curtain up. And that's what's likely to happen today. 50 basis point move is all but baked in, takes us to a range of four, twenty five to four and a half percent guidance that we will see more rate increases and a warning to Wall Street.

They'll keep the terminal rate in place for longer than people anticipate. We also get the new economic forecasts and the dot plot. Now, that's going to be interesting to Kristof's point, unemployment.

They only forecast it would go to four point four percent, not very much when you're raising rates as much as they have. And then they had it going down to just four point two percent for inflation, three point one percent next year, down to two point one percent in 2025. So it's going to take a while to get back to their target.

How much do either of those variables change? And then the dot plot. That's what everybody's gonna be looking for, that terminal dot up top there on the green line. Does that move up significantly? Or do they keep their options open? And what about the spread? You look at how tight 2022 and 2023 are. Does 2024 come together or is there a lot of division about where they're going? Those are the things that we're going to be watching for today. Might stay close. But, Michael, the floor is yours. Mike, if you go early, you can ask him that he's talked consistently about wanting positive real yields out across the curve. Now you have that by two important

metrics. One is the tips curve in the front end. You've got positive real yields of about 2 percent in the long run, about 1 percent. If you try to estimate where the Fed funds rate is out in the future, we're looking at the overnight index swap, the O ISE curve deflated by inflation swaps. It's now positive going out pretty much

to infinity. So he has what he's asked for. Does that mean he can pause if you go last? Then you throw away the Marcus of Queensbury rules and you ask him, does the chair believe that the current bout of disinflation is transitory? Might NIKKEI. Good questions and we will. I'll put both of those on my list along with my question about France or Morocco at the NASDAQ counterprogramming for this is ridiculous. Look, guys, you have it wrong. FIFA does not stand for football.

It stands for fixed incomes. Fashionable again. Is that right? It's not your new tank line. But, Michael, can you be honest with our audience when that news conference starts? Are you watching Champ Powell or the football at JP Morgan? I'm going to have them both on. I'm sure you are. I will tape and I'll be on TV. Mike NIKKEI. Thank you.

Step up, Michael. Christopher Monty sticking with us. Coming up on this program, the U.S. poised to give Ukraine's defense system a bit of an upgrade. We do maintain a robust dialogue with our Ukrainian partners, with our allies and our international partners on Ukraine's security assistance needs to include battlefield capabilities that they may need as well as air defense. And that conversation of an next. We recognize that with the air threat that Russia poses to Ukraine, that air defense continues to be a priority topic of discussion when it comes to security assistance. And so we'll continue to look at ways that we can best support Ukraine to protect their population and to protect their their broader infrastructure to be able to survive these attacks.

The Pentagon set to ramp up support for Ukraine to fend off Russian attacks, a decision to send a Patriot air defense system awaiting approvals from Defense Secretary Austin and President Biden. As Russian drone targets the Ukrainian capital, Kiev. This morning, Ukraine's general staff has reported that 11 missile attacks and more than 60 launched rocket systems in the last day alone. Philip DAX, Josh Wingrove reporting from D.C. on this.

Josh, can you get us up to speed on when this decision will ultimately be made? Yeah, it looks like maybe in the next number of days that they could make this decision, but that is different from how quickly these things will get on the ground. These patriot systems are very complicated. They're required typically large crews. We don't even know which version of the Patriot system would be going to Ukraine so that the time from decision to time from sort of missiles ready to go into the air is the big question mark. We just don't know the answer right now.

But these would be the most sophisticated systems. And they're aimed at exactly what we're seeing in Kiev this morning, which is these long range attacks that are targeting, in some cases, no power infrastructure, domestic civilian infrastructure. Having Patriot missiles is something that Ukraine has been asking for for a long time. It's one of those things near the top of the wish list to try to boost the chances that they can pluck these missiles out of the sky before they hit a power station or what have you. In the west, of course, is taking steps right now to sort of invest and rebuild these power systems. You don't wanna be doing that if a missile is going to come back a week or a month later and just blow it all up again. So it's kind of like it seems like an

implied insurance policy for the efforts of the US and its allied countries to rebuild this civilian target that targets that are being hit by these missiles. But it is the latest in a drumbeat of increased munitions going from the US. The Biden is consistently sending stuff that at the start of the war, he did not want to send it.

Just just briefly, can we touch on that? Well, understood as to why they want them, why we might center. Why the reluctance to send them? Why might they make the decision not to? The reluctance is around escalation and counter offenses, and the US has been very cautious of being the one to sort of up the ante in a way that would give Putin an excuse to go even further than he's gone. Now the thinking has changed. Remember, two reasons. One of that is he seems to be going pretty far any way now. As for whether these Patriot missiles will help counter defenses, analysts tell you that other systems like tanks and other missile systems would be actually what they need to sort of launch attacks deeper into Russia. This isn't about that. And that probably gives some calm to the Americans.

But it's still very complex. As I say, firing these things is tough. So this is this is one they're grappling with. That's why I think we're reworking signals that no final decision has come from the defense secretary and from Biden himself.

I just cannot for your reporting through today and into the weekend, just Wingrove there down in Washington, D.C., the team of Thanks America. Ryan, this on crude and this is important. Russian sanctions, low inventories, China reopening an opaque that's willing to cut production in case demand weakens, keeps energy prices high.

That call for next year. Look at these numbers. Brent crude could average one hundred a barrel over the course of twenty three and spike in the second half of the year to maybe one tenth. Final word now with Bob, Michael, Christian, Amani.

Bob, you mentioned China reopening. We've got to talk about the war in Europe as well. This has been another another impetus to make causes higher sticker inflation through much of this year. Bob, how do you think about these issues going into 2023? Well, there are two things that we all hoped would have been resolved, that there would have been some sort of resolution between Russia and Ukraine and there would be something which would allow China to reopen.

It looks like we're gonna get one, not the other. It turns out to be the worst combination for inflation, because where you would have gotten some energy production back into the markets again with some peace in Russia, Ukraine, it looks like it's going the other way. So that's not going to happen yet with China reopening the demand for energy to to run those factories all out. And for also two people to get out and

spend and consume and travel around, that demand is going to be there. So I'm sympathetic to seeing the price of oil back at one hundred dollars a barrel. Krizner Final word. Well, I think it is a possible scenario. I somehow don't think it is the likely scenario and the driver for that is really a slowdown, a modest slowdown from really high level of activity in this border. And the second well in the first half of next year, both here and in Europe to the turf here. This was absolutely excellent.

Thanks for your time Bob. Michael Christian, Amani, thank you very much. Looking ahead to the Federal Reserve and at the same time, not at the same place. We'll be watching the World Cup taking

place over in Qatar. I'm sure. With Chairman Pound on that news conference, equities right now on the S&P 500 just a little bit negative, down a tenth of one percent. Coming up, the money calls. And later, the latest inflation threat

providing some relief for the Fed. Kathy Jones at Charles Schwab looking for 50 today and 25 basis points in the first quarter next year. More on that around the open about.

Two days of gains coming into Wednesday. This morning, equity is down by about a tenth of 1 percent on the S&P and the Nasdaq down by two tenths of 1 percent. Share power Fed decision just around the corner. Let's get some more NIKKEI briefly. Thanks for America. Downgrading Best Buy to underperform 69 dollar price target, citing a challenging demand environment. That stock is down by almost 4 percent. Citi downgrading married to neutral 175 price target expecting more macroeconomic and capital markets uncertainty.

That stock is down by one point three percent. And finally, Goldman cutting test this price target to 235, citing softer demand and macro conditions. That stock down again this morning by one point five percent. Coming up, less than 24 hours away, counting down to share powers. News conference.

That conversation with Bank of America's Mike gave Ben and Kathy Jones a Charles Schwab. Up next, you're up and about with futures lower by a tenth of 1 percent, just around a corner. It is decision day. We are 20 seconds away from the upcoming bout this morning. Good morning to.

Well, features on low and negative flying just a tenth of one percent, two day winning streak coming into Wednesday. The Nasdaq was down about six tenths of one percent. And the rest of the small caps just a little bit. Self-doubt is down in New York. You switch at the bottom and get to the

bond market. Yields much love since this Fed last met on a 10 year right now unchanged at 358 highs for the year. About 430 look at a two year. This morning, the two year in early

November had a little look at full writing this morning for 20 and the affects market. Big turnaround there as well over the last couple of months. You're right, Donna, from some piracy DAX of one of 640 firm again this morning, five tenths of one percent. And just to wrap things up, crude could run at seventy six seventy four by one point eight percent. Twenty seconds into the session, your

equity market dead, flat, unchanged on the S&P 500 on the NASDAQ was down by about a tenth of 1 percent. If you want to move for one stock to watch the open, it's down to the company, boosting its profit outlook and keeping a bullish travel forecast. The CEO saying this in a statement. Demand for air travel remains robust as we exit the year and doubts this momentum is building. Lines. It never ends. It never does. We're gonna be paying a lot for airline tickets for some time to come, it seems, John. But it also is boosting Delta stocks up

more than 3 percent at the opening bell and taking some of those air carrier peers, along with the likes of United and American. Even JetBlue all gaining by about 1 percent at the opening bell. Now, what the numbers actually look like for Delta, they have raised their fourth quarter profit forecast between a dollar thirty five and a dollar, 40 cents a share. That is up from the earlier guide with a high rate end of the range at one twenty five for the full year, they see up to three dollars and 12 cents a profit. Analysts were only looking for two eighty nine. What is so interesting, though, is they

actually narrowed the revenue view. They now say sales will increase about 7 to 8 percent this quarter. The earlier range went up to 9 percent growth. So a narrower top line view, wider

bottom line 1. Clearly margins going to be a lot fatter than analysts were expecting thanks to those elevated ticket prices. And to that point, just take a look at revenue per average seat mile the last two quarters. Delta has posted the highest revenue per seat mile flown ever in data going back to 2007 up north of eighteen dollars. And this points to the strong demand that at Bastion was talking about.

What is so interesting, though, is we have to contrast what we're hearing from Delta today with what we heard from other carriers yesterday. JetBlue warning that the holiday period, the fourth quarter demand is shaping up worse than expected. Alaska narrowed its revenue forecast, noting a softening in corporate travel bookings. You're also at spirit, reducing its capacity forecast. So interesting, the divergence here between lower cost carriers and the major carriers and maybe who is ultimately willing to pay this much for airline seats. The big question again into 2013 is a big question. Covenants at 2022 as well down to right

now by more than 3 percent. Katie, thank you. Tesla down by about 1 percent this morning from September. Lisa was sent early this morning. A Bloomberg Surveillance is down about 50 percent since September. Investors pointing the finger at Switzer. Others, including Goldman, citing softer demand concerns, must find, in fact, tweets in the following.

Tesla will be great long term, but doesn't control macro economic tides. Let's get to Atlanta on the West Coast to marvel at which one is it. We blame it. Switzer here in that relationship or is it demand backdrop? It seems to be all of the above. It's hard to unpick. We're down for a third straight day. We're down in seven of the last eight sessions.

We're coming off the worst two day drop for this stock since April. Elon Musk has been tweeting about macro economic conditions on more than one occasion in the last week. He's also been tweeting quite a lot about the Fed saying beware debt when the Fed is raising rates. You know, I continue Jon's talk to investors on the institutional side and also remember how influential the base of retail investors are for this stock.

These are people that own the stock in kind of meaningful volumes and are also owners of the vehicle. And as one, you know, fan of Test Read, almost put it, that we've never seen this community more divided than they are right now. Many of them all looking at the news flow coming out of China and saying, you know, we want to hear from you, Elan, about what's happening on the demand side in China. As you know, John Bloomberg reported that there is a pullback in production in terms of the hours per shift and also onboarding new staff test. There's also cut prices in that market that would indicate it's a demand issue.

On the other hand, it's also standard practice for Tesla to hit pause on the assembly line at quiet times of year to make maintenance. But DAX also reported that. I would also say that the Adam Jonas from Morgan Stanley is out with a note this morning where they downgraded that Eevee penetration outlook for the U.S. market by about two percentage points in twenty twenty five to eleven percent. You know, it's as if this market is kind

of losing steam now. There's also downward pressure, of course, from what's going on at Twitter, because as Bloomberg's reported, Musk is considering scrapping the unsecured debt in favor of margin loans secured against the stock. That, as you say, is down 50 percent since since September. Right. So, gosh, there's a lot at play here for a single name. That disconnect between the NASDAQ and Testa is quite something to say.

Ed Thank you, sir. As always, looking at the broader market, about four or five minutes into this, we're positive by two tenths of one percent on the S&P and the Nasdaq up two tenths of 1 percent. Also counting it down to Chairman Palin and a bit later. This is what Mike Griffin of Bank of America has to say.

Looking for a hawkish message from the Fed chair services inflation remains too hot. We expect the Fed to emphasize that more work needs to be done, particularly in labor markets where demand outstrips supply. Michael, place aside, joins us right now. Mike, can you build on that? What are you looking for a little bit later this afternoon? All right. Good morning and thank you for having me on. So I think the first part of the message

will be a positive one, that it does look like we're past peak inflation and falling commodity prices and declines in goods prices are what's responsible for that. So on one hand, some very good and very welcome news. But I think the federal then step back and say, look, our goal is more than just putting inflation on a downward trend. The goal is to get it back to 2 percent. And in that regard, the labor market remains too hot. Labor demand is outstripping labor supply and services. Inflation is still inconsistent with 2 percent outcome.

So more work needs to be done on that point. So good news, but the hard work to use Powell's language, the hard work still lies in front of us. And Mike, this has been one of the big features, I think if your cold alongside the rest of the team that they have gone into next year. You still believe that risk escaped to a hot terminal right now, Mike, was that relative to market pricing, the dots and adult plot from September? What is it? I think it's a market pricing and just that look, we don't really know exactly where, you know, sufficiently restrictive is. Right. So the Fed's feeling its way at this

point in time. And the Fed's message can be more, you know, more balanced at this point because it will ultimately be data dependent. But the labor market is going to drive what constitutes sufficiently restrictive. And there we're still outing two hundred and seventy two thousand jobs per month over the last three months. And the wage data all suggest things there are pretty strong. So I think upside risk in terms of

exactly how much tightening will be needed to begin to remove some of those imbalances in the labor market suggest. I think still risks to a higher terminal rate. When that may happen, of course, will depend on how the economy evolves. But so good news, but not all the way there yet from the Fed's perspective. As for some numbers on it. So you're on the same page as Goldman with Hatzius Asset, say with Holland host B of A 0 3 if you're looking for 5 to 525 for the until next year. So when you say upside risk to that, Mike, what kind of number are you thinking about? Maybe it's not.

I don't think it's unreasonable to think that ultimately we need we may need to be in the five and a half to perhaps six range again, whether the Fed just kind of keeps edging its policy rate higher and we would get their say in the middle of next year. The Fed pauses for a while to kind of see how this inflation evolution plays out and maybe has to come back into to do more work later. I think that all remains to be seen. But the point here is simply to say two percent outcomes will be predicated on getting labor demand, labor supply back and balanced. Fed's done a lot of work already. But employment growth and wages are still pretty strong and the consumer has some momentum to its spending. So I just think it's unsure exactly where that appropriate terminal rate is.

And, you know, I'm not sure 475 to 5 would would be enough. And I'm not you know, I think five to five and a quarter will be enough. But I think the labor market is telling you things are still pretty strong underneath the hood. Interest in my game and this was great. Thanks. A Mac and Michael CAC.

And they're wonderful to catch up with you, sir. Thank you. Kathy Chan's at Charles Schwab waiting patiently listening to that. Kathy, I'd love your thoughts initially on Wolf. Mike, I not to say. Well, I generally agree that it's the labor market that's going to drive the Fed's decision making over the next year or so. I tend to be in the camp that says 5 percent is plenty in terms of the terminal rate. I think the evidence is building that we

are. We have passed peak inflation that we are seeing softening in the economy in a number of different areas in the global economy, still feeling the effects of all that tightening, the cumulative tightening over the last years. So really just kind of working its way through the system now. So we think the surprises and in the next set of data over the next six months or so will be to the downside. And that will give the room room for the Fed to kind of halt their tightening.

I think that the problem today for Paul is he doesn't have enough information to make that call. So today's message will likely be, yeah, we're pleased with the way things are going, but I would agree more work to be done. And I think the market's not quite ready for that message. So, Kathy, are you unconvinced by the argument that my comfort that this labor market will be ultimately too tight and the risk is skewed to the upside, the Fed funds that might be 475 doesn't get it done. Why doesn't that convince you? Well, we're seeing more softness in some of the underlying employment data that I think than than others are seeing, and there is even a study out today from the Philadelphia Fed saying that the benchmark revisions may actually subtract some jobs, pretty considerable number of jobs.

But, you know, at the end of the day, it's the Fed's call. So they seem to think that a 5 percent Fed funds rate is a good terminal rate. That's probably good enough since it didn't seem unreasonable to us.

But I think the surprises will be on the soft side. It sort of begs the imagination that we could have had all this same major central banks of the world, along with a bunch of emerging market central banks tightening policy over the last year. Quantitative tightening. And yet, you know, we're not going to see inflation slow down, and that just doesn't seem consistent. So, Kathy, from listening to you,

there's a disconnect here between what the Fed will signal potentially later on this afternoon and what you think is achievable. Kathy, I don't think you alone. So with that in mind, when they come out later and they potentially signal a much hot terminal, right. Maybe it's just below 5. Maybe it has a five handle that meeting in 2023. How do you think the market's going to

respond to that incoming information, Cathy, given that you have doubts and you're not alone? Yeah, I think that's the conundrum we're facing right now. It's a curve steep. It does it does it does it flatten and burn more? I think the initial reaction, the short end seems a little rich to me. I think we've priced in a Fed pivot, lower rates down the road, and I don't think that's the Fed's signal. So I think the short end is vulnerable to repricing along a different path of Fed funds along. And, you know, we've been in the camp that saw long term rates coming down now at three and a half. You know, we're kind of in a place where

where we think it's a pretty reasonable value. We do think there's a risk going down to 3 percent next year, but it probably is going to be a bumpy ride. So I I I'm a little concerned about how the short end is priced going into this announcement. Questions for Chairman Pound in the presser, Cathy, if you got one. Yeah. You know, I would love to understand

more about how the Fed views quantitative tightening and its impact on the economy. You get mixed messages about its importance to the Fed in terms of setting policy. I'd like a clearer message on how they see that going forward. Cathy Chance I'll tell my NIKKEI I'll do our best because I think he's got a long list of questions from Bob Michaelis. Well, Cathy, it's good to catch up. As always, your equity market looks like this about 20 minutes into the session with positive by third of 1 percent on the S&P and the Nasdaq up by two tenths of 1 percent. Yields come in just a little bit, only

by 3 basis points. No drama on a two year right now, just some 420 on a 10 year, 349 with down by just a single basis point. Coming up on this program, some bank went freight facing a long legal battle ahead. It's so hard to compare these things, but I think it's fair to say that by any anyone's life, this is one of the biggest financial frauds in American history. That conversation up next.

Is it Bloomberg's the Open? I'm Lisa Mateo, live in the principal room. Coming up, former New York Fed President Bill Dudley. That conversation at ten thirty a.m. in New York. Three thirty p.m. in London. This is Bloomberg. It's so hard to compare these things, but I think it's fair to say that by any anyone's life, this is one of the biggest financial frauds in American history. This investigation is very much ongoing

and it is moving very quickly in terms of whether we're gonna bring charges against anyone else. Look, I can only say this clearly. But we are not done. RTX found a sandbank when freight remains in jail. The head of the Senate FTSE hearing later today following a day of scathing testimony from the new RTX CEO on Capitol Hill. The RTX group's collapse appears to stem

from absolute concentration of control in the hands of a small group of grossly inexperienced and unsophisticated individuals who fail to implement virtually any of the systems or controls that are necessary for a company entrusted with other people's money or assets. Pretty brutal stuff. Team coverage starts right now with Glenn Beck. Sonali Basak and I stand in D.C. as well. Charlie.

What can we expect a little bit later? A few things. Remember, the chairman of the Senate Banking Committee, Sherrod Brown, has been very skeptical of digital assets. And you have Pat Toomey, who himself has said he bought the hype and by the end of the year is trying to pass a narrow bill to regulate digital assets in some way.

Though he wanted a larger framework. Remember testifying today? We also have two celebrities, including Kevin O'Leary, who took money from Sam Bateman, freed himself, who supports digital assets. Moore more broadly here. But then you also have Ben McKenzie, another celebrity who has said that, you know, he's used to lying. He's an actor. But if you look at the crypto industry,

it's full of life itself. So that's what we expect at the onset of the hearing. Remember, Cynthia Lummis is also part of this particular committee. There is the limits Gellibrand well, that they wanted to pass regarding digital assets. And then Elizabeth Warren also part of this committee as well. And Elizabeth Warren introduced a new bill today to combat money laundering in the industry to extend know your customer rules that are in the banking industry already and extend them now to digital assets.

So in addition to a lot of rhetoric, as we've been hearing for the last couple of days, remember, Sam Bateman freed his presence, having loomed very large within the U.S. Capitol, very clearly. So with all my conversation with lawmakers on the sidelines of these hearings, John, in addition to this debacle, figuring out the path forward is definitely a key concern for these lawmakers only out of interest, the relevance of bringing celebrities to testify. Why is that important? Well, first of all, Sam Maven Free does not here himself remember even before the arrest, he did not accept the subpoena from this committee to be here himself.

But the celebrities remember, the S.E.C. has targeted celebrities for pumping up crypto currencies. There are also two academics here as well that I'll speak to the issue of leverage in the system. So you have kind of both sides here, the responsibility for the correct type of marketing to the American retail investor, as well as the nuance here between these brokerages and exchanges that have gone virtually unregulated for so long and a recognition here that maybe they should have been much sooner. I'm looking forward to your coverage of AMH.

Want to come across to you. You've been following this story around campaign finance. What's going to happen with that money? Well, that's a great question, Jonathan. And as Sonali was saying, that is why this story is hitting so close to Washington, because so many politicians were lauded by these big donations and a lot of them we already see have either given money back to charity that was given to them from Sam Banks and Freed or one of his top lieutenants or they plan to. What we do know is that from the DOJ, remember, it's the DOJ, the CFTC and the S.E.C. that he has all come under fire from the DOJ. It's eight criminal counts and one of

them is about charges of violating campaign finances. So they're going to have to do a lot of digging on this. Potentially some of these super PACs have to give money back.

So far, they have not. But that's what this is going to come down to. There's a criminal charge against him about this. And obviously it's incredibly embarrassing for a lot of these politicians.

Emery. Let's talk about those politicians. How is certain politicians, maybe the opposition party, using these hearings as a moment to message and message pretty hard? Well, there want to be messages on the Republican side, of course, because he was number two in this election cycle in terms of giving to the Democrats, right. He was a big mega donor for the Democratic Party. But as you heard from the attorney yesterday from the southern district of New York, he gave to both political ends, especially if you look at his deputy, one of his top lieutenants, who really gave heavily to the Republican side of the aisle. What I think what you're hearing from

the Republicans is that they feel that the Democrats were cozying up to him. But it really could be seen on both sides in terms of the money that was coming in, Democrats and Republicans, really. No one was hands off when it comes to Sam Banks and free trying to as this is the what Damien Williams said, dirty money used in service of banking and Freed's desire to buy bipartisan influence and impact the direction of public policy in Washington. This is unraveling very, very quickly.

And certainly I just want to give you a final word on that. I'm ruffling fast, but it still feels like we're only scratching the surface. This is just one individual. Sonali, how many others do you expect to be brought into this? I think you have to expect here that everybody that was in his inner circle will be taking a hard look at when I talked to lawmakers on the side down here, what they say to is very often when they were meeting with Sam Bateman free, they were also meeting with his parents and his deputies over at RTX as well. And so how far does this go? Who knew what? The S.E.C. complaint very strongly outlines that

Sam Bateman freed was more involved in Alameda than he himself had said. So what else don't we know? John is going to be found out over the next several months or so. I'm sure this will take a long time to unravel. I'm looking forward to the hearing which commences in about eight minutes time. Sonali Basak a.m. of about here. Thank you, as always. About 22 minutes into the session, our focus shift and of course, that Fed reserve decision right now, the S&P up by four tenths of 1 percent.

The Nasdaq up by around about a quarter of one percent with some sector price action. Is Katie. Hi, Katie. Hey, John. Well, as we've gained some steam, most sectors also have moved into positive territory. The leaders early on include utilities, consumer staples and technology, which is why you're seeing the Nasdaq up a little bit here. At the bottom, though, materials and

communications services within that. That index down about three tenths of 1 percent. But you zero in on media. And then on cable, that's where you see the real underperformance because Charter Communications is down 14 percent. Worst date for the stock since March 20, 20. And this is a cap ex problem. The company unveiled a three year network spending budget that is bigger than analysts anticipated and clearly not liking that in an environment in which you have to spend more to spend more. The cost of capital is rising.

Charter therefore falling by 14 percent and taking some of those cable peers down with John Kennedy lines. Great work, as always. Up next, you're trading salary from New York City on this Fed decision day. This is pulling back. Three day rally on the S&P 500 so far so good Monday, Tuesday, Wednesday. Equities up this morning by four tenths of 1 percent on the S&P, on the Nasdaq, up by around about a third of 1 percent. When a stake going into the Fed, let's

get you the trading diary. That was the price action coming up. The RTX testimony on Capitol Hill continues at the Senate, in the Senate at the top of the hour. President Biden is speaking at 130 Eastern Time. A Fed rate decision coming at 2:00 p.m., followed by chairman House news conference, football match happening at the same time. Of course, I'll be so focused on one thing the Fed rate decision from the away and the ECB coming up on Thursday.

Plus, another round of jobless claims, retail sales in America still to come. And we round out a weak PMI ISE on Friday from New York City. This was the countdown to the open. I'll see you a little bit later for Fed coverage. Good luck for the rest of the trading day. This is Bloomberg.

2022-12-22 04:21

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