tv Bloomberg Markets Americas Bloomberg August 27, 2021 10:00am-11:00am EDT
is in terms of curtailing future growth. tom: there will also be many headlines. the kansas city fed in control of the message and we will see that with the papers coming out in an orderly note. also, we will see it in terms of the headlines of the chairman and the headlines are simple. we have the breaking news of a speech. michael, please. michael: if you are looking for a signal from jay powell, there will be discussions on wall street. i'm going to come down in the camp of yes, powell is saying tapering is on the way. here are the key quotes from his address. "my view is that the substantial further progress test has been met for inflation. there has been clear progress toward maximum employment." people's on to say -- he goes on to say, "if the economy evolved
broadly as anticipated, it it could be appropriate to start reducing the pace of asset purchases this year. the intervening month has brought more progress in the form of the strong employment report for july." he goes on to say they will be watching the data, but it does put him in the camp of those who are ready to start tapering. he does not give a direct signal, but that is a strong lien in the direction of starting to cut back on q. week. he does note that labor market conditions are improving, but turbulence in the pandemic continues to not only threaten health and life, but economic activity. earlier today, we got a higher pce inflation rate. powell continues to stick to the idea that it is going to be a transitory effect because inflation at this point is not broad-based. it is a higher inflation. items are moderating. long-term expectations are low and globalization continues.
now we will hear from the chairman himself. tom: here is chairman powell. chair powell: this shot lead to an immediate and unprecedented decline as large parts of the economy were shattered to contain the spread of the disease. the passive recovery has been difficult and a good place to begin is by thanking those on the front lines fighting the pandemic. the essential workers who kept the economy going, those who have cared for others in need, and those in medical research, business, and government who came together to discover, produce, and widely distribute effective vaccines in record time. we should also keep in our thoughts those who have lost their lives from covid as well as their loved ones. strong policy support has fueled a vigorous but uneven recovery.
one that is in many respects historically anomalous and in reversal of typical patterns in a downpour -- downturn. personal income rose rather than fail and households shifted their spending from services to manufactured goods. booming demand for goods and the strength and speed of the reopening have led to shortages and bottlenecks, leaving the covid constrained supply side unable to keep up. the result has been elevated inflation in durable goods, a sector that has experienced an annual inflation rate well below zero over the past quarter-century. labor market conditions are improving, but turbulent and the pandemic continues to threaten not only health and life, but also economic activity. many other advanced economies are experiencing similarly unusual conditions.
in my comments today, i will focus on the fed's efforts to promote our maximum employment and price stability goals amid this upheaval and suggest how lessons from history and the focus on incoming data and the evolving risks are for useful guidance for today's unique monetary policy challenges. the pandemic recession, the briefest, yet deepest on record, displaced roughly 30 million workers in the space of two months. the decline in output and the second quarter of 2020 was twice the full decline during the great recession. but the pace of the recovery has exceeded expectations with outputs surpassing its previous peak after only four quarters, less than half the time required following the great recession. as is typically the case, the recovery in employment has lagged in output.
nonetheless, employment gains have also come faster than expected. the economic downturn has not fallen equally on all americans and those least able to shoulder the burden have been hardest hit. in particular, despite progress, joblessness continues to fall disproportionately on lower wage workers in the service sector and on african-americans and hispanics. the unevenness of the recovery can further be seen through the lens of the sectoral shift of spending into goods in to, durable goods such as appliances, furniture, and cars and away from services, particularly in person services in areas such as travel and leisure. as the pandemic struck, restaurant meals fell 45%, air travel 95%, and dentist visits six the 5%. even today -- 65%. even today, services di
remains about 7% below trend. total employment is now 6 million below is february 2020 level and 5 million of that shortfall is in the depressed service sector. in contrast, spending on durable goods has boomed since the start of the recovery and is now running about 20% above the pre-pandemic level. with demand outstripping pandemic afflicted supply, rising durables prices are a principal factor lifting inflation well above our 2% objective. given the ongoing upheaval in the economy, some strains and surprises are inevitable. the job of monetary policy is to promote maximum employment and price stability as the economy works through this challenging period. i will turn out to a discussion of progress toward those goals. the outlook for the labor market
has brightened considerably in recent months. after faltering last winter, job gains have risen steadily over the course of this year and now average 832,000 over the past few months, of which almost 800,000 have been in services. the pace of total hiring is faster than at any time in the reported data before the pandemic. the levels of job openings are at record highs and employers report that they cannot fill jobs fast enough to meet returning demand. these favorable conditions for jobseekers should help the economy cover the considerable remaining ground to reach maximum employment. the unemployment rate has declined to 5.4%, a post-pandemic low, but is still too high and the reported rate understates the amount of labor market slack. long-term unemployment remains elevated and the recovery in
labor force participation has lagged well behind the rest of the labor market as it has in past recoveries. with vaccinations rising, schools reopening, and enhanced on a unemployment benefits ending, some factors that may be holding back jobseekers are likely fading. while the delta variant present a near-term risk, the prospects are good for continued progress towards maximum employment. the rapid reopening of the economy has brought a sharp run-up in inflation. over the 12 months through july, measures of headline and core pce inflation have run at 2.4% and 3.6% respectfully, well above our 2% longer run objective. businesses and consumers widely report upward pressure on prices and wages. inflation at these levels is a cause for concern. but that concern is tempered by
a number of factors that suggest that these elevated readings are likely to prove temporary. this assessment is a critical and ongoing one and we are carefully monitoring incoming data. the dynamics of inflation are complex and we assess the inflation outlook from a number of different perspectives as i will discuss. the spike in inflation is so far the product of a relatively narrow group of goods and services that have been affected by the pandemic and the reopening of the economy. durable goods alone contributed about 1% to the latest twelve-month measures of headlining core inflation. energy prices, which rebounded with the recovery add another 0.8% to headline inflation. we expect the inflation effects of these increases to be transitory. in addition, some prices for
hotel rooms and airplane tickets declined sharply during the recession and have now moved back up close to pre-pandemic levels. the twelve-month window we use in computing inflation now captures the rebound in prices, but not the initial decline, temporarily elevating reported inflation. these effects, which are adding a few tenths to measured inflation, should washout over time. we consult a range of measures meant to capture whether price increases for particular items are spilling over into broad-based inflation. these include trimmed mean measures and measures excluding durables and computed from just before the pandemic. these measures generally show inflation at or close to our 2% longer run objective. we would be concerned at signs that inflationary pressures were spreading more broadly through
the economy. we are directly monitoring the prices of particular goods and services most affected by the pandemic and the reopening and are beginning to see a moderation in some cases as shortages ease. used car prices appear to have stabilized. indeed, some indicators are beginning to fall. if that continues, as many analysts predict, then used car prices will soon be pulling measured inflation down, as they did for much of the past decade. this same dynamic of upward inflation pressure dissipating and in some cases, reversing, seems likely to play out in durables more generally. over the 25 years preceding the pandemic, durables prices declined with inflation averaging -1.9% per year. as supply problems have begun to
resolve, inflation in durable goods other than otto's has slowed and may be starting to fall. it seems unlikely that durables inflation will continue to contribute importantly over time to overall inflation. we will be looking that supports or undercuts that expectation. we also assess whether wage increases are consistent with our 2% inflation goal over time. wage increases are essential to support a rising standard of living and are generally a welcome development. but if wage increases were to move materially and persistently above the levels of productivity gains and inflation, businesses would likely pass those increases on to customers, a process that could become the sort of wage price spiral seeing in the past -- seen in the past. we see little evidence of wage increases that might threaten inflation.
broad-based measures for compositional changes in the labor force, such as the employment cost index and the atlanta wage growth tracker show wages moving up at a pace that appears consistent with our longer-term inflation objective. we look attended to monitor this carefully. policymakers and analysts believe that as long as longer-term inflation expectations remain anchored, policy can and should look through temporary swings in inflation. our monetary policy framework emphasizes that anchoring longer-term expectations at 2% is important for both maximum employment and price stability. we carefully monitor a wide range of indicators of longer-term inflation expectations. these measures today are at levels broadly consistent with our 2% objective. because measures of inflation expectations are individually noisy, we also focus on common patterns across the measures.
one approach that is summarizing these patterns is the board staff index of common inflation expectations, which combines information from a broad range of survey and market-based measures. this index captures a general move down in expectations starting around 2014, a time when inflation was running persistently below 2%. more recently, the index shows a welcome reversal of that decline and is now at levels more consistent with our 2% objective. longer-term inflation expectations have moved much less than actual inflation, or near-term expectations, suggesting that households, businesses, and market participants also will lead and that current high inflation ratings are likely to prove transitory and the fed will keep inflation close to our 2% objective over time. finally, it is worth noting that
since the 1990's, inflation in many advanced economies has run somewhat below 2% even in good times. the pattern of low inflation likely reflects sustained inflationary forces, including technology, globalization, and perhaps demographic factors as well as a stronger and more successful commitment by central banks to maintain price stability. in the united states, unemployment ran below 4% for about two years before the pandemic while inflation run -- ran at or below 2%. wages did move up across the income spectrum, a welcome development, but not by enough to lift price inflation consistently to 2%. while the underlying global disinflationary factors are likely to evolve over time, there is little reason to think that they have suddenly reversed or abated. it seems more likely that they will continue t on inflation as the pandemic passes into history.
we will continue to monitor incoming inflation data against each of these assessments. to sum up, the baseline outlook is for continued progress toward maximum employment with inflation returning to levels consistent with our goal of inflation averaging 2% over time. let me now turn to how the baseline outlook and the associated risks and uncertainties figure in our monetary policy making. the period from 1950 through the early 1980's provides two important lessons for managing the risks and uncertainties we face today. the early days of stabilization policy in the 1950's taught monetary policymakers not to attempt to offset what are likely to be temporary fluctuations in inflation. indeed, responding may do more harm than good, particularly in an era where policy rates are
much closer to the effect of lower bound even in good times. the main influence of monetary policy on inflation can come after a lag of a year or more. if a central bank titans policy in response to factors that turn out to be temporary, the main policy effects are likely to arrive after the need has passed. the ill-timed move unnecessarily slows hiring and other economic activity and pushes inflation lower than desired. today, with substantial slack remaining in the market and the pandemic continuing, such a mistake could be particularly harmful. we know that extended periods of unemployment could mean lasting harm to workers and the productive capacity of the economy. history also teaches that central banks cannot take for granted that inflation due to transitory factors will fade. the 1970's sought to periods in which there were large increases in energy and food prices,
raising headline inflation for a time. but when the direct effects on headline inflation eased, core inflation continued to run higher than before. one likely contribute in factor was that the public had come to expect higher inflation. one reason why we now monitor inflation expectations carefully. central banks have always faced the problem of distinguishing transitory inflation spikes from more troublesome developments and it is sometimes difficult to do so with confidence in real-time. at such times, there is no substitute for a careful focus on incoming data and evolving risks. if sustained higher inflation were to become a serious concern, the fomc would certainly respond and use our tools to ensure that inflation runs at levels that are consistent with our goal. incoming data should provide more evidence that some of the supply-demand imbalances are
improving and more evidence of a continued moderation in inflation, particularly in goods and service prices that have been most affected by the pandemic. we also expect to see continuing strip -- strong job creation and we will be learning more about the delta variant effects. for now, i believe policy is well-positioned. as always, we are prepared to adjust policy as appropriate to achieve our goals. that brings me to a concluding word on the path ahead for monetary policy. the committee remains steadfast in our expressed commitment to support the economy for as long as is needed to achieve a full recovery. the changes we made last year to our monetary policy framework are well suited to address today's challenge. we have said that we will continue our asset purchases at the current pace until we see substantial further progress
toward our maximum employment and price stability goals measured since last december when we first articulated his guidance. my view is that the substantial further progress test has been met for inflation. there has also been clear progress toward maximum employment. at the fomc's recent july meeting, i was of the view that if the economy evolved broadly as anticipated, it could be appropriate to start reducing the pace of asset purchases this year. in the intervening months, has brought more progress in a strong report for july, but also the further spread of the delta variant. we will be carefully assessing incoming data and the evolving risks. even after our asset purchases end, our elevated holdings of longer-term securities will continue to support accommodative financial conditions. the timing and pace of the coming reduction in asset purchases will not be intended
to carry a direct signal regarding the timing of interest rate liftoff, for which we have articulated a different and substantially more stringent test. we have said that we will continue to hold the target range for the federal funds rate at its current level until the economy reaches consistent -- conditions consistent with maximum employment and inflation has reached 2% and is on track to exceed 2% for some time. we have much ground to cover to reach maximum employment and time will tell whether we have reached 2% inflation on a sustainable basis. these are challenging times for the public reserve as the pandemic and its unprecedented toll on health and economic activity linger. but i will end on a positive note. before the pandemic, we all saw the extraordinary benefits of a strong labor market to our society. despite today's challenges, the
economy is on a path to such a labor market with high levels of employment and participation, broadly shared wage gains, and inflation running close to our priced ability goal. thank you very much. lisa: you have been listening to fed chair powell speaking. the notes i getting from strategist so far, it feels like a tapered. september is off the table, but a very clear signal from jay powell that he will endorse tapering by the end of the year. welcome to "bloomberg markets." i'm alix steel. francine, you are seeing in the market, a reaction. nothing massively significant in terms of asset prices. francine: it was a pretty cautious speech and we will speak to michael mckee shortly. basically, the fed chair saying they could be appropriate to get tapering this year.
what was also interesting was the assumption about the hiking rates right after the tapering decision. this is one of the most interesting in terms of sequencing and maybe that is what the markets will take in stride. we can start tapering in september, october, november. it is unclear whether a rate hike could come before they start tapering. alix: we have definitely seen some softness. yields coming slower. let's get some more detail with michael mckee, economics and policy correspondent. your biggest take away? michael: the chairman is ready. he has joined the rest of the group and they will announce tapering soon. whether they do it in september or not will depend on the jobs report a week from today for august and also, the progress of covid. they will be keeping an eye on that. if there are signs that it has peaked and the job market is good, we get in the middle of the month the cpi report that may have enough information to at least say tapering is coming
in september, which would start the repricing process. it does seem like everybody is on board now. there is not much need for this emergency measure anymore. francine: at the same time, he was very dovish when it comes to inflation. he told us inflation would be transitory and he did not talk much about the delta variant. michael: they do not have a good handle on how it is going to affect inflation going forward because this time, we are not seeing shutdowns the way we saw. we will see additional supply chain problems. but those are on the supply side and the fed affects the demand side. there is not much they can do about that. their problem would be if people stayed home and stopped going out and spending money and they do not know whether that is going to happen. the early indications are there is a little bit of a falloff off, but not that much. at this point, powell is keeping an eye on it. to that extent it drives policy,
if things get bad, they will wait. if not, they go forward. alix: were you surprised at how little we heard about delta? michael: no. he is not a doctor. they do not have a lot of data. they did not have a lot of information yet. he said it is still a risk and we are keeping an eye on that. we will start tapering, depending on the progress of the disease. at this point, the fed is kind of wondering what is going to happen but figuring based on history that we will get past this and it will be time to start moving. francine: thanks so much. bloomberg's michael mckee with the latest on jay powell. coming up later, mike wilson speaking at 1:00 in new york. our markets analyst, a former trader and voice of global squawk, vincent.
thank you for joining us. it seemed a dovish speech, but ready to taper. vincent: i am not so sure it is dovish, but rather the fact that the message was made clear to markets that there is a distinct defense between the two, that it is time to remove and removing asset purchases does not mean we are removing accommodation. until we see the lights of the eyes of inflation and jobs returned back to pre-pandemic levels, i think we can still see and the markets are seeing this as the fed is saying, we are not taking away the punch bowl yet. we are moving this extra accommodation level that the markets do not need anymore. alix: we had some clearing out of dollar positioning into this. you are the effects guy. what is new for the dollar? vincent: i think is going to bounce from here. every trader i talked to this morning was like, what the hell. no one got a good handle at this.
some real clearing out of positioning. some profit that started before the fed. probably machine driven. at the end of the day, younger term we have to see this as u.s. rates will go higher and what that will mean is the divergence rates will favor the u.s. and eventually will favor the dollar as well. alix: thanks so much. appreciate you joining us. let's get your equity take. the s&p 500 now lagging. small cap industries all weight ahead of the imposing of -- symposium. what have you noticed? >> immediately saw stocks drop on the headline that tapering is coming fast. that is going to be a negative catalyst for risk assets broadly. but rebounding, we did not see that. this massive spike, a lot of that because the news was priced in. we know about this. we heard about is last week. we got chairman powell to confirm it. that is a take from stocks in
particular and you can see that with the s&p 500 -- the s&p 500. there are other pieces. there is a cross asset story. risk usually is positive anyway. we look at this from a one-week standpoint, this is going back to 2011 in the week ahead, almost always see positive. the exception being 2012 and 2016. it is no surprise that we had a risk on. we are anticipating the speech and the jackson hole symposium happening. we heard what jackson -- what chair powell had to say. i want to go to what is moving the most. banks traditionally follow yields. yields are higher now. they were down three basis points. they have rebounded as well. stocks were initially higher. they were leading the rally today. we saw them fade a little bit today with yields. it looks like they are roaring back. jp morgan up 4.6%. this is good news for stocks. all sectors in the green. which brings me to the real
outperformer and that is going to be big tech. amazon, microsoft, apple, broadly gaining today. whether that is interpreted as a risk off defensive moves, who knows. there is a fact here that broadly you are seeing small cap and text do really well. that tells me that momentum plays are really en vogue. francine: thanks so much. joining us now is bloomberg intelligence chief u.s. interest rate strategist, ira. ira: ultimately, this is curve steepening. it means that the two to five year sector is going to hold in pretty well because the chair was unambiguous about his dovishness and the dovishness and risks to an early hike. i think that we are going to see some of the stops pushed out over the next couple of fed meetings and this completely solidifies argue that they will taper in november and basically
be on hold for a year or more after they finish tapering next summer. alix: what does that mean in terms of volatility? where is positioning from that? it does feel like they are forecasting is clearly. walk us through that. ira: i think the volatility does not come until they actually start tapering. you have people like jim bullard come out today before chair powell spoke and saying this is priced in the markets. i think what people who think that this is completely priced by every market, what they are missing in the rates market is the flow effect. the federal reserve buys $80 billion of treasuries everything month. the big thing that means is that dealers, intermediaries of the market have someone to sell to all the time so they are able to pass through anything that they buy and send it right back out to the fed. once that buyer leaves the market, the market will have to
reprice and adjust for that. what that means is 10 year treasuries go from where they are now to maybe 170, 180 level. our work suggests that the current round of quantitative easing is worth 50 basis points to the 10 year yield. nothing like the 2013 experience once they taper, but it is going to have a pretty meaningful impact. francine: what is your timing on the possible rate hike? ira: i have the end of 2023 as penciled in for my rate hike. so much of this really has to do with what you are talking about with michael mckee. are we going to have other variants? probably going to have a slower reopening and are we going to have additional shutdowns? there is a lot of unknowns. at the end of the day, we have to think about the second half of 2023 as the first hike, not early 2030 or late 2022 as a lot of people were thinking was the potential first hike period.
once you start to see the dots, some of them will get pushed out, particularly from the important members of the board of governors who we have to focus on, not some of the regional president. alix: that is really so far well -- so far away. thank you so much. we have other breaking news. the maker of ev pickup's backed by amazon is said to submit an ipo. they are looking to ipo around thanksgiving. that is pending s.e.c. approval and they are seeking a valuation of $80 billion. we will dive deeper into that right after this. this is bloomberg.
this is bloomberg. alix: that to that breaking news, an ipo seeking roughly $80 billion. ed ludlow joins us. $80 billion, that is no joke. what do we know so far? ed: this is a market that has an appetite for companies when it comes to the capital market. especially consider that everyone else has not done anything yet. they have not built a single vehicle for sale, made no deliveries to customers. they face multiple setbacks largely because of covid-19 and supply chain disruptions. investors see them as the main challenge to tesla. they take a very prudent approach. they have invested heavily in their plant in northern illinois
as we have broken stories on over the last few months. they are looking at expansion in europe and the last few months -- the. their product they want to bring to market is much more in line with what americans are buying in terms of day-to-day vehicles. there is a lot of excitement around the company. francine: $8 billion is such a huge amount of money. they are also backed by amazon and forward so that might help. ed: that is the diversifying factor is their business versus tesla. they have contracted amazon to build 100,000 delivery vans by the end of the decade and 10,000 of them by the end of next year. they are on a hard timeline. that is a different kind of business arrangement than introducing a brand-new consumer product to the market and trying to ramp up your production to meet demand, which they say is there. they are very tech heavy and they have some big-name backers. alix: who are the competitors right now in the space for
rivian? ed: it is interesting because ford shares are on the move right now after that story dropped. they are bringing a battery electric pickup truck, the electric f-150, to market. not only are they an investor in rivian, they are a potential competitor. ford has a battery electric delivery van in the works just like rivian. that is a really interesting dynamic. they are compared often to tesla because they have so many former tesla management working at rivian. the upper echelon right through the senior managers in engineering and production. what my sources tell me is that many of those tesla alumni have brought this sense of prudence to rivian, that they should take their time, that they should not make the mistake that tesla was making when it ramped up production in 2018. francine: thank you so much. . they have this contract with
amazon to build 100,000 vehicles by the end of the decade. peloton shares sliding after a tough quarter. they reported widening losses. peloton also disclosed that authorities have subpoenaed more information tied to its treadmill and that the company is being investigated by the fcc. emily chang spoke with the chief executive in an interview. >> i think our business is in fantastic shape. we had a good 2021 that just ended in the beginning of july, which was our fiscal year start for 2022. we grew 114% for a's inscription business, which is our core business, and we had more than 66% subscription growth for that same business. they are feeling like the growth is there. we are making smart investments and we have had an incredible year with covid. 50% sub growth against a covid year, which is pretty herculean
and we are feeling great. emily: you are cutting prices by 20%, which would be $400 for your most popular bike. why do that now? >> i am glad you asked. we are proud to be able to offer our bike at a lower price point. it has been our dream. six years ago going back, the founders and i, it was like nails on a chalkboard when people talk about peloton as a product and experience for rich people and it's not. it's for everybody. we keep talking about democratizing access to great fitness and so lowering the price of the bike today, we were able to do it now because our supply chain capacity finally caught up with our demand so now we are going to be able to make over one million bikes this year and with that type of capacity, we can lower the price to now $39 a month, which feels accessible. when you think about you and your partner might split the membership or you might both ride the bike. it is under $20 per month for the hardware.
under $40 per month when you factor in these description. we 4th grade about the accessibility and we are proud to over -- offer. it is the right thing for our business and our communities and our numbers. emily: you have been subpoenaed for information about the treadmill recall by the doj, the ftc is also investigating. there is concern you did not recall them soon enough. children being in danger. what can you tell us about this? john: we will always cooperate with authorities when there is an investigation. we are proud of what we are doing. we don't have anything to hide. the consumer product safety commission also investigated us. we were working with them to get on the right side of the line with safety for our trade -- tread that is going to be for sale next week in the u.k. and canada for the first time. we are on the right side of the
line with the cpsc with perspective safety and they feel good about our product, which we do to. we think the new tread will be a game changer. my partner says he thinks this could be bigger than our bike business. we are going to cooperate with any investigation. emily: you did expect optimism about the business on the call saying it could be bigger than the bike business. what makes you so confident, given it has been a difficult start and what are some lessons you have taken away from this process, which i'm sure has been incredibly challenging. john: the reason why i'm confident is i believe that this boot camp style workout, treadmills of yesteryear were machines where you just gone on and droned on for 30 minutes and you did not love it. the peloton treadmill brings circuit workouts, boot camp workouts. you are on it for five minutes, you are off. you are still connected to the leaderboard when you are off the tread.
you are doing weight training, full body workouts, which are super popular, even more popular than cycling classes. the category of treadmills is much bigger than stationary bikes and the content that you consume in these classes is even better from my perspective than a full body perspective than just the indoor cycling. we think it is going to be a fantastic product. the promoter score is already 85 for the product. we have high hopes for the tread category. emily: what else is on the peloton roadmap that investors can get excited about? we have reported on potential new products, a strength training machine, and new heart rate wearable. john: we reported that 10% of our revenue has gone into r&d. we have so many fantastic new platforms across all kinds of different opportunities and new platforms that we are excited to bring to market. we have said that this year is
going to be a big year for wanting these new platforms. we have nothing to talk about today, but we have a lot of cool stuff that we are not stopping at the bike or the tread category. emily: you said you would return to profitability by 2023. some of the issues have taken you back. what makes you confident you will get there by then? john: the beatable thing about our business is that it is predictable. when you think about the subscription business, we will end this year was over 3.6 million subscribers at $39 per month. we also have a fantastic performance-based marketing organization where we know what we are doing with respect to marketing and having that translated to sales. we are insanely disciplined about performance marketing. we have very productive revenues. when you layer that print ability of the current casual and the protect ability of our hardware sales against a printable expense bates -- predictable expense base, we are
allowed to say we are going to be profitable based on understanding our business. when we say we will be profit or next year -- profitable year, you can sleep easy that that is the case. what we have said is that this year is an investment year. investment years are fantastic. we feel good about the investments we are making. we feel like it is the right thing for long-term growth. alix: that was emily chang speaking to peloton ceo. francine, are you a peloton user? francine: i am a nothing user. i am the worst person that does fitness. the last time i was on a treadmill was 1999. it is interesting they are trying to go for the younger crowd that makes less money. it is one of the only companies i hear that are trying to cut prices by 20%. alix: that is a good point. i have to wonder, i get the financing plan, $39 per month is not bad. it is still an expensive piece
of equipment. i thought it was interesting what he was saying about some skipton services. i am a pilates not. they have streaming classes and you do not have to have the equipment. i think that is the extra source of revenue he was talking about, which was pretty interesting. francine: it is amazing when you section off the companies or the sectors that have done well in the pandemic. they were one of the ones that have done the best with gyms reopening and restaurants reopening, it might be a tougher couple of years ahead. alix: it would be really hard to get me back into the gym, i have to say. no thanks. coming up, we will break down the market reaction to chair powell's comments and jay barry, j.p. morgan head of strategy is seeing dovish for asset classes. this is bloomberg.
♪ >> at the fomc's recent july meeting, i was of the few, as were most participants, that if the economy evolved broadly as anticipated, it could be appropriate to start reducing the pace of asset purchases this year. alix: that was fed chair powell speaking from the virtual jackson hole symposium. jay barry, head of jp morgan bond strategies, 10 year yields, 1.75% by the end of this year. with jay powell support that kind of call? jay: good morning. i don't think anything we learn from chair powell did anything to derail our view that we are headed toward 1.75 by the end of the year. he seems to be ready to taper later this year. contingent on further improvement in the labor market. it seems like the august report will be key for that. he is trying to separate
tapering from tightening. in our minds, we think the path to higher yields is coming from another strong round of employment reports where we see the unemployment rate declined and puts us on a path to not just tapering later this year, but we also need to see the delta variant and this wave big into crest. francine: overall, a cautious but actually smart way of guiding the markets. jay: i think that is the case. he told you he is in the part of the committee that is ready to taper this year as long as we continue along on this path and we have made substantial further progress toward the inflation target, but clear progress toward the labor market. as long as the delta variant does not do anything to reduce mobility and the result is substantially weaker growth, they are going to taper asset purchases this year. they are nowhere near ready to raising rates and that will be a key piece of the puzzle in
preventing another taper tantrum. alix: that is why we are saying a nice equity rally. you are seeing the dollar move lower. what we learned this week is there is a huge foreign demand component. i wonder how that plays in if we have this goldilocks taper with rate hikes scenario. jay: no doubt, the demand for treasuries this year in the second and third quarter has been strong. i think the foreign demand is hard to discern where it is coming from, but are likely from private investors who have been covering short as briefs declined to. as we think about the path forward, the real robust demand for treasuries is away from the foreign community has come from commercial banks, asset managers, pension funds and the path we see forward from the bank community is that the bank would not be as strong as it was earlier this year. further, if we get a sense that we are not going to realize these weakest growth outcomes that we are worried about as the pace of the man steps back. francine: what exactly happens for treasuries in the next six months? jay: you already mentioned that
the target is 1.75. we are sitting at a low 1.30. the first thing we would argue is that at current levels, 10 year yields should be closer to 150. there is a bit of mean reversion that needs to be done and that has to come with further improvement in the labor market, a sense that the delta variant is not impacting the u.s. economy, and the extent that global growth is not deteriorating because it seems like the way the commodity prices rallied back and bond yields have risen across the spectrum that we need to get a better sense of that. that is the key variable to get us to revert back to fair value. beyond that, it is the time of the first rate hike and delivering above trend growth. we are looking for 3% growth in the fourth quarter and beyond. if that is right, we are pricing our friday benign outcome for the fed over the next three years. alix: it sounds like we can
avoid the taper tantrum. is that true? is the fx market going to feel it differently? jay: i think it depend on the path and the nature of the selloff and the treasury market. it was real driving in 2013 my drake evens narrowing alongside higher yields. i think that contributed to the weakening of spread products. this time around, we are looking at it for it to be an even mix of nominal yields and a breakevens -- that breakevens sen. wyden: further. -- set to widen further. when we look at jp morgan, we are looking at high-grade, high yield spreads to narrow further and our equity target at the end of the year is close to where we are right now. there is a sense that this is not going to have a major impact. francine: thanks so much. jay barry, jp morgan head of strategy joining us. chinese companies are extending
their decline. there is a report that beijing plans to ban companies with large amounts of consumer data from going public in the u.s.. this is just another regulatory crackdown on something that china thinks. what is the ramification of this? >> it is clear that this is the direction things have been moving in recent weeks. heine is clamping down on a number -- china is clamping down on a number of things. they are ramping up regulation in a ton of areas that up until now have received relatively light regulation from the country. i think what investors are really worried about is we do not know what is going to come next. alix: exactly. do you feel like this will be retroactive? there are a ton of big companies , alibaba, tencent. will they be retroactive in
capacity? ben: i doubt it but what i think people are worried about is that the flow of new listings is going to stop. over $50 billion of chinese ipo's have taken place in the u.s. over the last five years. many of the fastest-growing innovative companies have people like alibaba or tencent as major shareholders. i doubt china is going to be asking alibaba to the list -- de-list anytime soon. francine: what does it mean concretely? these companies still need money. they need funding. do they ipo elsewhere or not ipo for the moment? ben: there are a few different things they could do. it is china that -- it is clear that china is most concerned about what happens when these companies list overseas, whether there are any disclosure requirements that might be difficult for them.
but they are also worried about the companies themselves and whether they are amassing too much data on their users. it can go a couple of different ways. some of them may choose to list closer to home in place is like hong kong or other companies may say we are going to give up control of our data. we have written about some companies that are hiring off the data into separate units, adding them under control of an affiliate or government regulator. alix: we appreciate the update. definitely one that wall street is watching very closely. coming up, it is friday. we have half an hour until the close of trading over in europe. volume is very light. european stocks are performing as well as the dollar up. this is bloomberg.
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and alix steel. ♪ alix: here is her thing you need to know in europe at this hour. in search of coordination, italy pushing for its g20 extraordinary summit to try and manage the prices. -- the afghan crisis. allowing travelers to skip quarantine a girl of vaccination status. and powell's devastate birth. chair powell reassuring -- and powell's devastating taper. i am here in the u.s. joined with francine lacqua. powell seemed to deliver what he wanted. a dovish type of taper. some tried to say it was not dovish at all. he is very o