FED, John Farrow, Tom Keene discussed on Bloomberg Surveillance

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Being the inflation environment. The cool part of inflation is proving to be sticky and persistent. We're already seeing a reduction in forecasts. Earnings expectations growth expectations will be proved to be way, way, way to be bullish. In the grand scheme of things, the fed strategy and the domestic inflation story here dominates. This is Bloomberg surveillance with Tom Keene, Jonathan farrow, and Lisa Abramovich. Countdown to retail sales, good afternoon, good afternoon, if I'm going to do the two word open. I don't have British accent. Good morning. This is Bloomberg surveillance on Bloomberg TV and radio John farrow Lisa Abram with saint Tom Keane. John farrow off Tom Keane very much here with us. John is off on an assignment. I am looking right now toward retail sales to figure out whether we get a confirmation of the robustness of the economy that's going to lead the fed to be more hockey. I'm going to call it the glass and my report. Jim glass went to JPMorgan and Michelle Meyer at Mastercard on the same page. Here is the data. Here's what we see and what it says is a buoyant American consumer. How many people push against that? Well, pushing against it, not of its buoyancy that they're seeing. But what the fed has to do to get inflation under control given that consumers aren't getting the message that they need to stop spending so much. And I think that that's the kind of that's the sort of good news bad news bad news is bad news thing that makes this happen. I mean, to me, it's not a behavioral aspect. They have one exact tool in McKee will talk about this up to Wednesday when we speak with Richard Clare to the former vice chairman of the fed and they don't have a behavioral construct here. They have a simple tool and to your point, ala Jordan Rochester said earlier this morning, the Titan from Nomura, a hundred beeps is an out of the realm. I can't get there. I don't see a stick. It's called a stick folks. You're raising a stick. We haven't seen that, and they're known lives, I would suggest. And a lot of people sort of discount the 30% chance of the market is given that right. That's my control over at JPMorgan. What people are looking at is not just 75 basis points. Next week or a hundred, they're looking at the possibility that rates could go up to 4.4% as a base case, which is we're seeing priced into the market right now. This is important. Life goes on out moments ago, Adobe, we all know them, the PDF people, and all that, they're going to buy figma for 20 kazillion dollars cash and stock. It's a figma of my imagination. I have no idea what figma is. What I know is this signals, Lisa, life goes on. And to your point, Tom, capital markets are reopening after having been closed for the bulk of early this year. And that is notable, especially when you've got S&P futures here that are down a quarter of a percent. You have this sort of sustained softening that we saw a couple of days ago. You do the data check, you do it better than me, but the bottom line, I'm going to start with Sterling under a 1.15 again. If I'm the prime minister of the United Kingdom morning this queen celebrating this new king, I'm sorry, I got one eye on the Bloomberg and the answer is Sterling weaker. And they have also another eye on their energy policy that they have to come out with some more details on next week after just a proposing, one of the biggest physical plans. We're also seeing a ten year yields that is getting higher priced down, yield up 3.45%, but I'm really watching the two year yield, having broken through three 80. And sustained there in this feeling of how far the fed could potentially go. You know, before we get to Jim, we're not in the 4% watch yet and the two year. I mean, we got to get to three 90 to play that game, right? I think that you can, you can play whatever game you want. We are seeing as the velocity of that yield rise and what it infers. I think that that's important to note. Right now, the question that I have is ultimately what kind of earnings pain has to come along with a 4% four and a half percent. Benchmark fed funds rate and Jim Paulson, chief investment strategist at booth hold group, has to parsing through this. Someone who has been concerned about the ramifications of tighter fed policy gym, what is your view on whether the market is adequately grappling with the likelihood, the probability if you view a market's pricing as such, a 4.4% fed funds rate next year. I think 4.4% is not in the market. I don't think it is. And I think that'd be way overdoing it. And I think the risk is now that the fed does overdo this. I think much of the free bond market is pretty good. The ten year yield's been good for months, really since May at this three to three and a half area. Thinking the fed probably quits at the three, three and a quarter. It doesn't look like that at the moment. But I think that if the fed's going to manage monetary policy on the basis of what was the hottest report in the last 30 days, I think they're going to make a big mistake. To me, there's a lot of contractionary force from past economic policies already in the pipeline that have lagged effects on the economy and on inflation in particular that are going to continue to put downward pressure on inflation well into next spring. If the fed would do nothing from here, a tremendous drop in money growth in fiscal juice, a big rise in the dollar massive rises and bond yields, all of that still working the way through the pipe, putting downward pressure. I think the fed's going to lose its case to keep raising rates. Maybe sooner than we think. There's a lot here. In a bigger way. Yeah. There's a lot here. And we have to start unpacking some of it. We could talk about rejecting the idea of their pivot, even though they're saying, we're not going to pivot, but there's also this question of what would be the ramifications if the market's right. If the fed funds rate does get to 4.4% next year, how much downside could there be in equities? Well, I think that I think that supple would blow between by the time we got there and would cause things to stop and quite frankly, if we stopped the tightening of interest rates, I think the market would probably come out of that okay. Earnings would come off much more than we currently think, but I think multiples would expand is where it's kind of where I'm at. You know, if I could just point out that for an equity investor, when I look back, Tom all the way to 1940, we've had 7 major inflationary peaks. And what I find major is over 6%. And of those of those 7, the stock market bottomed almost coincidentally with the peak annual peak in inflation and everyone but one of them. And there isn't about how fast inflation comes down to more when it peaks and it doesn't escape my attention that the CPI inflation rate peaked in June and right now the market low is June. And I'm not so sure that it isn't already working its way back up. Jim fossil fuels you on Bloomberg radio, we are honored to have the backdrop of St Paul's Cathedral here at Queen Victoria street, and as Jim knows, the last time the Minnesota Twins won was in their topping out the dome in 1710 with Christopher Wren. I would suggest Jim even more so that if you go back to 1710 and Queen Anne, you're going to find a gloom permeates and the system fixes it, explain how the corporate system and the economic process Adam Smith's microsystem solves an inflation. Well, I think you're exactly right, Tom. I think everyone thinks that the fed is the only thing standing between

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