tv Bloomberg Markets Americas Bloomberg November 22, 2021 10:00am-11:00am EST
thatcher jay powell renominated for a second ash fed chair jay powell renominated for a second term -- fed chair jay powell renominated for a second term, and vice chair, lael brainard. we will get comments from peter praet and jan hatzius. the question is, now what? guuy -- guy: clearly there was some brainard in the price because you are seeing a stronger dollar and yields going higher more broadly. so maybe there is a view that may be powell on balance, and i agree it is absolutely marginal, may be a little bit more hawkish. you've got to think about maybe an earlier taper. that process i think is going to be interesting. the next press conference is going to be fascinating. maybe he will talk about some of this. i very much doubt it. i wonder whether the delay has
undermined powell from the get-go. i appreciate that he is the continuity can't and it -- continuity candidate, but has this delay undermined him daca -- undermined him? what does he do for the president? alix: the position for president biden, he is trying to get this human infrastructure into the senate. i'm watching two-year yields. we are off the highs of the session, still up by about four basis points. you are seeing more rate hikes being priced into the fed, one more in november 2022. you're looking at the currency market. guy: you saw it, this is where we got almost the biggest reaction. you did see a stronger dollar. maybe on balance, this idea that maybe powell will be a little more hawkish. but we have unwound some of that move already. look at the market reaction today. a list -- it is fairly muted. this was a finely
balanced decision. the market is moving the be a touch forward in terms of the progression of the rights cycle, but it is not a huge move. alix: it is not, and i have to wonder, to that is what is happening with the virus and the regional lockdowns as well. i want to bring in a roundtable here. michael mckee, bloomberg international economics and policy correspondent, who has not slept because of this, i am sure. annmarie hordern, damian sassower. what was the process like to get here? do we know what happened behind closed doors? annmarie: we knew the president spent at least an hour with each individual, and his allotted time went over with governor brainard. it was clear that these were the two top individuals for that spot. he also spoke to a number of senators, including senator warren who was at the white house recently, senator sherrod brown, who will be the first line of organized net panel for a hearing for these individuals
as early as december. we have been waiting for this decision. prior administrations have made the decision earlier, so this is coming a little late in the schedule. perhaps they were waiting to see if they had the votes for these two. sherrod brown has said he but either of these candidates would be able to get through. i would just look at their past numbers. it was 84-13 when governor powell became chair powell, and in 2014 -- and things have really changed since 2014. governor brainard, hers was in the 60's, so potential he she did not have as much bipartisan support. this does seem at the path of least resistance. i know you're going to be speaking to ira jersey. i like what he says, staying the course while still mixing things up because they were able to get a democrat in that top second
spot. guy: i want to get mike's take. ira, do you think chair powell has been undermined by this process? it has taken longer than we thought. a lot of it has been in the public eye. we have all been trying to figure out exact a what has been happening here. we have all been waiting, mike mckee, to see what happens next. using powell has been undermined? -- do you think powell has been undermined? michael: i wasn't sure if you were talking to me or to ira, but i do think powell is in fine shape at this point, not undermined by it. there's a lot of politics that has gone into this, and if anything, people are going to look at the biden administration and find out why they took so long. take a look at this child, the powell years at the fed. the white is when he was chair. this is his entire term. back in 2018, the fed was
raising rates and planning to raise rates more, and the market sort of choked on that, and he was forced to backtrack. at that point, people thought this newcomer was probably not up to the job. then we saw the crisis, the pandemic come along, and he immediately cut rates to zero and started pumping money into the economy and was seen as much more of a hero. of course, it is always what have you done for me lately, so the real question is what does he do next in terms of inflation. alix: ira, it seems like the market is somewhat expecting something like that. ira: the market is certainly starting to price and the chance -- price in the chance of an early taper. i think with brainard as vice chair and with chair powell probably staying in office, i don't think they will actually end the taper. the question becomes, do we price multiple hikes for 2022?
right now we are priced for june and november next year. i think that is not an unreasonable expectation given these inflation dynamics, but keep in mind that i think as you get into 2022, the worst of some of the inflation numbers on a year on year basis are probably going to be behind us, so i think one thing jay powell has going for him is he can maybe be a little bit patient and wait until march or april to make that call as to whether or not they are going to start hiking in june of next year. guy: they managed the taper without a tantrum, but if we bring it forward, how do you think prices react? ira: i think we had a little bit of that taper tantrum in january and february. i think one of the reasons why we haven't had the same kind of tantrum this time as before is
the communications this time was much better. the federal reserve give us very long leads, basically benchmarks for when they would actually start to reduce their asset purchases. the other thing we have to remember is now that they are tapering asset purchases, the treasury department is also cutting the amount of supply, so 2-year note at 11:30 today will be a pretty interesting auction, but it is smaller i couple of billion dollars than it was last month, see you have the fed cutting, and at the same time you have less issuance by the treasury department, so you don't have the same dynamics where you still have very large deficits and getting larger deficits as you had in 2013. alix: is that why we are not seeing the real yield move in the same way we have seen nominal yields? we are off the lows, but still -100 basis points to some
extent. yes, the curve is steeper, but i think it is all relative. ira: the inclusion of petitions and flows from retail investors in particular into etf's and mutual funds is insatiable. you have seen massive flows into tips funds, and tips are not the most liquid of rates products, so you see those real yields superlow. we did a piece two weeks ago looking at when real yields actually selloff. with the exception of the taper tantrum, real yields don't selloff until the federal reserve starts to hike interest rates, so once they do, you could see a big move in tips real yields and negative returns on a lot of those products that retail investors have been pumping money into over the last apple of quarters. guy: amh, let me come back to you. how does the squad react? what is the end packed -- the impact on build back better? annmarie: when you look at what
the white house has done, they keep saying they want an independent said and they want -- independent fed and they want to have continuity at the fed, so keeping chair powell does that. i think that is a nod to the bipartisan support you have seen for the chair. his own treasury secretary, janet yellen, said she supports that decision. then there is a nod to the progressive by elevating governor brainard to the vice supervisory position. this is an incredible big role, and this is likely one that is going to be welcomed by the left. there were three senators to watch out for. there's senator elizabeth warren, who said powell is a "dangerous man," but she had been on the white house, so she was probably part of at least understanding some of what the makeup could be. other centers like senator sheldon whitehouse saying they did not think jerome powell should get the top spot because of climate change. but the white house has three other positions to work with as
well, so potentially they can lean a little bit to the left these three other positions. but when it comes to monetary policy, brainard and powell everyone pretty much agrees are in lockstep. alix: mike, talk about those other vacant slots. when you think we get that? michael: after these two, i have no idea when we get those. it is a little bit surprising that they have not put them forward, but unsurprising given it is a complicated effort to try typical of those people at once. but the vice chair for supervision is going to be the big when the gets all of the attention because people thought it would be lael brainard. does this mean that the president goes in an even more regulatory hawkish direction, which would satisfy the warren wing of the party, for that seat? how does that play into the other two seats they have to fill, rich clarida's and wendy borrow -- and randy quarles?
that will be important to whoever they put in. that person will have a full term. the other seat that is open has only two years, so if you wanted to put in perhaps a republican to balance some of it out and get some republican votes, you could do that as part of the effort. jay powell was chosen as a republican for a two-year term when jeremy stein was appointed as a democrat to the fed board in 2012. so there are a lot of dynamics at work here, but the one to keep an eye on for supervision, and it is a little odd that that when they did not move on. that seat is already open. you would expect that move to come reasonably soon. guy: when we take a step back and look at what is important to the president right now, he has started talking about this idea that build back better is going to be disinflationary. do you think we should look at what is coming out of d.c. right now as having an impact on
inflation? does this at the margin mean that the president can say i am on the front foot when it comes to fighting inflation? that is the biggest narrative right now in d.c. michael: the problem for the president is it is economics that gets into the weeds a little bit, and the average american isn't really going to understand that build back better's disinflationary aspects are going to take years to develop as the systems get put into place and the economy gets hopefully more efficient. where you might see some immediate inflation is in the infrastructure program, depending on how fast that money goes out the door. if you have read "the powerbroker, you know that in new york, they were always ready with a shovel ready project during the franklin roosevelt years, and they built an awful lot very quickly, but when we saw the stimulus program under barack obama, states and cities were very slow to get their projects going, so it did not
have as much of an impact. probably the bottom line is both will be relatively neutral in this situation for inflation, but there's a lot of other factors that people have been talking about that the president has to pay attention to. you notice in the president's statement today, he welcomes powell's views on inflation and maximum employment, putting inflation first. i thing that is going to be the emphasis from this administration going forward. guy: it is going to be interesting to see exactly how he articulates that and how the message shifts as a result. thank you very much, indeed. bloomberg's annmarie hordern and ira jersey on the market set up right now. a little shift higher in yields. we will continue our coverage of jay powell's renomination on bloomberg television. nobel laureate paul krugman, laura tyson, rafael bostick all on deck as we work our way through the day. 1:20 is when we are going to
hear from the president, the chair, and the vice chair. what are we going to talk about next? we are going to continue to focus on the fed. we will talk more about the markets. we are also going to talk more about how wall street is fixing its equality issues. lazard says wall street needs more diversity, and his backing one of the only woman backed wall street bank. paul or sock -- paul orszag of lazard is up next. this is bloomberg.
let's talk about one of the more important subjects that we need is been much more time on when it comes to discussing wall street. lazard docking one of wall street's only female owned investment banks. the startup, independence point advisors, founded by wall street veteran anne clarke wolff. she joins us, as well as peter orszag, lazard group ceo. erik schatzker with us. erik: you started your career at salomon brothers. but it also spoke to the kind of firm you wanted to build. tell us, why is now the right time for a women-owned investment bank on wall street? anne: thank you. it could not be a better time. i always start with the most important thing in our industry, which is our clients, and how we
change client outcomes. as i took the time over the past year to think about why it still had impact on our industry, clients kept coming back to the diversity of opportunities and challenges they were confronted with, and the need to have a wider aperture of talent and helping them navigate that. so i really have to thank clients are saying now was the moment to try to take on this audacious role of being exceptional talent, but that also happens to be diverse. erik: peter, when you and i spoke yesterday, you said there are situations when it is already a huge disadvantage to show up with a team of all white men. that is obviously intriguing. it is also revealing. is diversity no longer a matter of we will get there at some point, but rather something your clients are expecting to see and
perhaps even demanding? peter: yeah, i think we are at an inflection point. that is for two reasons. one is that more diverse teams, more diverse banking teams can produce better outcomes and better insight, and to your point, clients are starting in certain situations to demand a more diverse team, and we think that will grow over time. erik: you describe the partnership with anne as part of the modernization of lazard. tell us about that modernization effort, and specifically how you see lazard and independence point working together. peter: it is a very exciting time at lazard. we have this great brand, this great history, but we are also trying to become more modern, dynamic, and diverse. that is a big part of what is going on here. across the board, from a hybrid
work environment to a lot of investment in automation to make the day today less mundane, to a real commitment to expanding our diversity, lazard today is on a new path and a dynamic past. i think the affiliation and alliance with independent point advisors is a great indicator of that trajectory. we are really excited to be working with anne and her team. erik: you have spent your career thus far at sea group, jp morgan , and bank of america, were you finished as chairman of global corporate and investment banking. what does the modern investment bank look like? anne: the modern investment bank, and my opinion, has to do with distributed talent. distributed is a word that comes up in many modern contexts, but if you are going to really bring the diversity of talent required
confront these challenges, you first have to start with expertise. clients are never going to be interested in advice purely becomes -- purely because it comes from a dev or steam. but where you get the intersection of incredible expertise and diversity and the diversity of life experiences, we think that is going to open of the aperture and be exciting to the next generation of bankers who i very much have on my mind, of how do we make this industry the place that they want to be to enjoy the experiences that people like peter and i get to enjoy in working with some of the best clients around the world. erik: people are going to wonder, why give up one of bank of america has top jobs -- bank of america's top jobs? with it, the power that comes with a roll like that, the money, the security, to take the risk of starting your own firm? anne: i think that covid has
taught us all a lot of things, but i thought a lot about impact and legacy. i have spent the past 30 years trying to play an impactful role inside of these organizations and being a champion for not just women, but people of color, openly out talent, veterans. it got harder and harder for those voices to be heard, and i also saw the next generation of our daughters not thinking about the career i pursued. so if the launching of ipa does nothing else than send a signal that wall street can be a modern place, that working mothers can work, succeed, and thrive, and that we play a small role in changing this industry, that would be an incredible legacy and and a cripple impact -- and
an incredible impact. erik: peter, how much of a problem is what anne describes still on wall street? is it not attractive enough a place for women not just to start out? clearly, most of the endless classes in wall street investment banks are split about 50-50 these days, but to stay and ultimately build a career at? peter: clearly, we need to do better. i think that is just stating the obvious. for the industry as a whole, this is one reason why we are so excited about the affiliation with independence point, because it is symbolic and because it is a way of trying to say to those new analysts or associates looking forward to their careers , there is a different path here, and we can make it work. in some sense, we have to make it work.
it is an exciting moment because what we have done so far as an industry hasn't been sufficient, so it is time to try something new. guy: let me jump into this conversation. maybe widen the lens a little bit. we have just had the announcement of who will be the next fed chair from the president. do you think the president missed an opportunity to put another woman at the top of one of the most important institutions in the world? anne: we had two exceptional candidates. i am excited to continue to follow lael brainard's career, but we are also at a point in the economy where stability is really important, and clearly, moving the country together in a unified way, so it will be exciting to see the role that she will continue to have on the fed today and in the future. alix: peter, similar question. good to see you. your reaction to a powell
renomination? it does look like we are still headed for a world of moderately higher rates, but still a lot of liquidity in the system. peter: from my perspective, this is sort of the dream team. chair powell clearly is a force for stability and good sense in monetary policy. lael brainard is someone i have known for over 30 years. extremely talented person. i think together, you are going to see an even better alliance and combination. i just think the combination is very powerful. with regard to the implications, we clearly have a raging debate about inflation that is going to be front and center for both powell and brainard going forward, and that is going to consume a lot of the debate in early 2022. guy: do you think we need to do
more more quickly? do you think inflation is going to fade? the president has taken to talking about build back better as being deflationary. what stimulus, if any, using the economy needs right now? peter: i think we are at a moment where i would be in watchful waiting mode. there are people i respect that think we should be moving more aggressively towards fed tightening. i just think we are at such an unusual moment in the inflationary process, and there is some indication that some of the supply chain dynamic that has been a big contributor to inflation not only in the united states, but in the u.k. and continental europe, that some of that may be stabilizing possibly by early next year, and i think it would be worth waiting to see. i understand the county argument -- the counterargument, and respect the people who are putting it forward, but from my own perspective, i would
like to see how this very unusual period plays out before reaching conclusions that we need to go towards hard on a trade policy tightening. alix: in the meantime, you are still running a business. what is the world where there is still tina, still uncertainty about inflation, but a potential taper that is being pulled forward? what does that mean for an investment banker? anne: our clients face more opportunities and challenges than they have ever faced, and that is part of why we are adding capabilities that most investment banks typically don't focus on. we have built a phenomenal geo strategy, cybersecurity, esg team. these are the issues that are confronting ceos and their boards, and certainly in a period where the markets will go through a transition in the next two years, i think that the advice from both what ipa is building and the powerful
combination of the alliance with lazard will be an unbeatable pair for clients who have plenty of challenges they need to confront. alix: thank you so much for your generous time today. we truly appreciate it. we enjoyed this conversation. thank you for bringing us that interview. let's get you some updates on some headlines. opec+ is saying that they may adjust their plans to raise production next month if consuming countries go through the coordinated release of strategic petroleum reserves. we learned over the weekend that japan and the u.s. may announce a plan to jointly really screwed from those reserves as early as this week. goldman sachs saying the market is already pricing in 100 million barrels of release. opec+ is going to respond. still going head to head on that. guy: it is amazing. you got a cartel of suppliers, a
cartel of consumers staring at each other right now. it will be interesting to see ultimately who blinks and how this one turns out. we are approaching in our into the u.s. trading day. the sense thus far is that we have equities higher, tech on the front foot. you got a stronger dollar, higher rates. abaco doolittle wrapping it up for us. over to you. abigail: it is certainly an interesting day, all about the renomination of fed chair jay powell and the elevation of lael brainard to vice chair. here's the reaction. this is the story on the day. take a look at the s&p 500 futures, up 0.9%. a huge spike out of the overall session. investors like the fact that the safety net is likely to stay in place of monetary policy. if we take a look at some of the top movers, apple and microsoft are the biggest point boost to the s&p 500. here you can see apple here, microsoft out here.
these are the biggest point boosters. sector wise, if we go into the terminal and to collect the imap, we are going to see lots of green, and not surprisingly, the green is from those sectors. technology, communication services, along with financials. if we take a look at what is happening relative to bonds and rates, the 10 year yield up. a dichotomy between the idea that you have yields higher, but helping tech and financials, supported by the fact that you have a selloff in haven gold, and you have the dollar versus the yen early climbing, so that haven yen is also selling off. alix: you also don't have lael brainard as the head of supervision, so that is doubly hoping sentiment. we want to get some more insight into how powell's renomination
went down in the d.c. pillar world. greg valliere -- d.c. political world. greg valliere, agf investments strategist, joins us now. what went down in the administration as to how we got to a powell renomination and a brainard vice chair? greg: i think it was a compromise, that the compromise for -- that the consolation prize for brainard was the vice chair role. joe manchin i think made it clear to the white house that he wanted powell, and right now, whatever joe manchin wants, joe manchin gets. guy: has powell been damaged by the delay? this took a long time. there was clearly a lot of internal debate. has powell been damaged as a result of that? anne: it hasn't helped -- greg: it hasn't helped.
my waiting this log, he may have sent the snow that he did not have the greatest confidence in the world. powell was a little too sanguine in the spring and summer, that way behind the curve, and now you see the president with terrible poll numbers. the democrats probably going to lose the house, and one of the reasons voters site is inflation. sure the president thinks that powell did not do a great job, but also feels to not reappoint him could be even worse. alix: do you think president biden got anything from senator manchin in this, when it comes to the human and for structure bill? is there a link at all? greg: hard to say. we will have to read people's books in two or three years. i would say i do think that manchin will be listened to very carefully. he doesn't have carte blanche, but he's going to get a lot of what he wants. guy: if that is the case, how
does the left react? greg: they are probably disappointed, but brainard got a promotion. she will have a big role in regulating the banks, so that was an olive branch to elizabeth warren on the left. but i am sure they are disappointed. they when it somebody a little more aggressive. i think to not reappoint powell would have been quite negative for the markets. alix: there was a cbs poll on sunday that showed 2/3 of americans disapprove of the president's handling of inflation. "the washington post" reported that president biden told allies he plans to run for reelection. what is happening? greg: he's got to hope that things get better. there was an interesting story about the supply chain, things looking a little better imports. oil prices have dropped for the last couple of weeks. that is a good story. but i think it is going to take many months for public opinion to change. during that period, biden has to
work a lot harder to get his message out that what he has done is good for the economy. great dichotomy here is that you've got a pretty strong economy right now, with unemployment dropping. i think people are more shocked by gasoline prices and grocery store prices. if those should stabilize, i think the democrats have a chance to curb their losses next fall. guy: we will leave it there. interesting to get some political insights on all this. greg valliere, agf investments chief policy strategist, thank you very much. let's get more from austan goolsbee, 32 advisors strategic partner and former chair of the council of economic advisors. your thoughts? austan: you couldn't get much more continuity than the people who are there stay where they are.
hopefully now the senate will just get the business done and get these two confirmed to these new positions, and the administration will get about the business of naming the others, including the supervisory role. i think if the market was thinking brainard not becoming supervisory means it is going to be light touch regulation, i don't think that is accurate. i would predict that the administration is going to nominate somebody who has a more muscular view of how the financial institutions should be regulated. alix: do you think there are some candidates that were the a go to all of branch to the progressives when it comes to regulation? austan: there are plenty of people that could be good. you have always got to see are they interested, and you still
got to get 50 votes in the senate, as you raised before. the key point from economic theory is what does joe manchin think. so i would expect that they are in some heavy maybe not negotiations, but discussions with the senators over who could do those. guy: who would you like to see doing those roles? austan: well, there are a lot of people that they could nominate that i think would be fabulous. lael brainard is a wonderful friend of many years. jay powell has identified that he is not afraid of carrying out this framework that they outlined before the inflation arrived, and it is taking a bet on team temporary, that the supply chain will ease and by this point next year, we will be
back in a more normal scenario. alix: when you worked in washington, what is your understanding of the power of joe manchin and how that winds up playing out with the fed, and then when it comes to the human and for structure bill that now has to make its way to the senate and will know doubt be stripped down -- will no doubt be stripped down? austan: if you need 50 votes, every senator has a veto. that's part of the delicate dance. you saw it with nancy pelosi trying to usher it through the house. you can't just say what does joe manchin think because if what joe manchin wants woodley's you'd -- once would -- wants would lead you to lose other senators, then you still don't have the vote. that is the argument per powell, that you had a series of republicans get up and publicly say they wanted powell renominated, so you don't have that same dynamic. on build back better, you will have that dynamic.
they have to get 50 votes. there are not going to be any republicans involved for it. for the other nominees, you are seeing diplomatic nominees. you are seeing a whole bunch of things where they are being held up by republicans, and they just won't let them through. i wonder if you will start to see -- historically, we have not has much of a partisan fight about that come but there is a history of fed governor nominees getting held up by both sides. you will remember when obama was president, they nominated somebody who won the nobel prize in economics, but the republicans said that peter dimon wasn't qualified to be a nominee. trump put forward nominees that some in his own party, plus the democrats, said they did not want them to be on the fed. so we might still be in for a multi-month period where we've got vacancies and we can't get to agreement. guy: is the fed being damaged by
this whole process? it has taken a lot of time and debate about who the right candidate would be to be the fed chair. there has clearly been a lot of horsetrading going on. we are talking about senator manchin. we don't know what the process is going to look like going forward from here. if the fed being damaged here? is the fed's credibility being put under pressure? austan: i don't think so because even with this, everything is behind-the-scenes. you didn't get to see in public when any of the discussions were or how they were thinking about it, and the fact that the number one and number two nominees are people that the market is very familiar with and they're already there, to me this doesn't seem like it undermines the fed's credibility or does damage. i think it slowly seeps out the capacities of the fed the longer you go without nominees, and we
had this environment under obama, then under trump, and we continue to have it now, where they are understaffed. it raises the relative importance of the regional bank governors who are not nominated through the normal political process. they are chosen by the regional banks boards themselves. they have a lot more power on the fomc when there aren't governors that are nominated from washington, so i will watch that dynamic. alix: that is such a good point. before we let you go, i went to get your take on the claim by the claim by the biden administration that build back better and the human and for searcher actually going to camp and down inflation. what you think? austan: i think in spirit, there are things that go the right way . the child care will allow likely an increase in labor force participation from parents of small kids.
there are a series of things like that. for the most part, i think the build back better in the human capital agenda is best thought off on its own merits. the republicans saying that is going to increase inflation i think is nonsense. the argument that is going to have a material decrease on inflation, i don't know how fast the impact of build back better will take place. my conception of what is happening with inflation is kind of a 6-12 month phenomenon, and i don't know how fast those will affect the supply side, if they can be done in six months. alix: we really appreciate your time today. thank you so much for joining us. coming up, we are going to get wall street's take on jay powell's renomination.
>> from my perspective, this is sort of the dream team. chair powell clearly is a force for stability and good sense and monetary policy. lael brainard is someone i have known for over 30 years. extremely talented person. i think together, you're going to see an even better alliance and combination. guy: peter orszag, lazard group ceo. jan hatzius is goldman sachs' chief economist.
peter described this as the dream team. how would you describe this team? jan: i would agree that this is a very strong set of appointments, and certainly something that provides continuity and a very strong sense of unity, at least as far as monetary policy is concerned. i think the views of chair powell and soon to be vice chair brainerd are going to mesh very well, so i would agree with what peter has been saying. alix: the market is pricing in a second rate hike for november 2022. is that the right call? jan: it is consistent with our forecast. we will see whether it is the right call. but our forecast is for one hike soon after the end of tapering. we are looking at the july meeting, although june is certainly possible, and then a
second hike in november. i think that is consistent with the economic data we are seeing and the fact that when you get to the middle of next year, it is probably still going to be very high inflation. that makes it kind of natural to transition into the hikes. guy: do you think today's news makes a faster taper any more likely? jan: it is not my expectation that we will get a faster taper. i think my expectation would be that they stick with the current pace and then hike once you get to the end of that. i think another important point to keep in mind is that projecting more rate hikes down the road is a pretty close substitute to hiking earlier
from the perspective of the impact on financial conditions. so i think maybe that is the preferred alternative. alix: what would be the conditions to see a faster taper? but would need to happen from the economy or policy in d.c.? anchor: i think it is mainly about the passive and -- jan: i think it is mainly about the passive inflation. even if you see higher inflation , especially in the more trending categories, into 2022, i think then you could see an acceleration, but time is relatively short. the announcement of a faster taper in december, i think the hurdle for that is still relatively high, and you get to january or march fomc meeting, and then you are relatively close to the end already, so i think you would need to see some substantial upside surprises
relative to at least our forecast, which is already 4.3%, 4.4 percent for core pce inflation by the end of the year. guy: i am may be seeing things that aren't there, but inflation is in front of the labor market in terms of the sequencing in the language. do you think we should think about that more deeply and wonder whether actually inflation is now a bigger priority for the fed going forward after the conversations with the president, after the conversations with senator manchin, for the fed, which is largely focused in terms of the language delivered recently on the labor market? jan: i think it is the number one topic at the moment, so it is not surprising, certainly as far as washington is concerned. the concern is more on the inflation side, so we wouldn't really view this as surprising
relative to the new slaoui have been getting and relative to the polling -- the new slaoui have been getting and relative to the polling -- the news flow we have been getting and relative to the polling we have been getting. alix: thank you very much, jan hatzius, goldman sachs chief economist. mark cabana, bank of america mobile head of rates strategy, joined us. you are looking at another hike now priced in for november 2022. mark: we think the announcement today is going to give the market more confidence to move ahead with the pricing of rate hikes for next year. we are seeing almost a full rate hike priced and in june, another in november, and post three by the end of next year. we think the announcement today should allow the fed to pivot to acknowledge the upside risks from inflation and begin to talk about how they will respond. in many ways, fed leadership was somewhat constrained in making this pivot while waiting for the white house decision, but now that that is out of the way,
that should certainly allow for the fed to shift a bit more in that direction. guy: does that mean a faster taper? mark: we certainly see risks skewing in that direction. we are likely to see a chorus of voices advocating for a faster pace of taper. we will have another employment report and cpi report ahead of the december fomc. this will certainly be a live discussion at that meeting. but it still seems a little too early to us to imagine that the fed will announce in december a faster pace of taper. what instead we think is more likely is a truncated or shortened pace of taper. it is quite possible by the time we get to the march meeting next year, assuming that inflation continues to come in quite elevated, that the fed announces that we don't need to finish the taper. we are already borrowing -- already buying such a small amount of treasuries, and we
want to provide a signal to the market for a june hike or get they could just stop the last month or two months of taper, and we don't think it would have a material impact on the market because the fed will be buying so little at that point in time anyway. alix: i am curious to get your take on real yields because for whatever move we have seen in rates, whatever we want up expecting from the fed, the theme of there is no alternative still stands pretty firm because real yields are still so negative, even if the real yield curve is a bit steeper. what is going to materially rerate real yields? mark: we think it is likely this fed pivot that is upcoming. we believe the path of breakevens and real rates are somewhat inconsistent. it implies essentially a very modest reaction from the fed and a market that seems to believe policy will remain next ordinar -- will remain accommodative.
we see risks start to rise as you see more of a hawkish pivot from the fed, and today leadership announcement should allow for that. today we are seeing real rates and breakevens re-accordingly. breakevens are narrowing. they are still very low, but we do think this is likely the start of a shift that we are going to see from the fed, and then in real rates, that should allow for modest increases in real rates. that is going to be a headwind for risky assets. we do worry that if the fed does indeed turn hawkish and signal that they are changing their stance, they are more worried about inflation, they feel like they have met full employment, that those higher real rates could be a constraint on risky assets. guy: all hell is bricking loose and europe. we had riots over the weekend. covid cases arising. lockdowns are back on the agenda. how do you price that? mark: it is a downside risk. the market certainly incorporated that into pricing on friday. it does mean that global growth
could face ongoing headwinds. but in the u.s., we continue to focus on fundamentals. you've got a very strong rate of growth right now in the economy. you've got very healthy labor markets, and you've got inflation running very high. right now we haven't seen inflation breakevens move outside of recent ranges, at least materially, but the risk is that they will, and the fed has to be responsive for that. the fed knows that covid is an ongoing headwind, but they have got to be focused on the data that they see in the u.s. and the fact that it is quite unlikely we are going to see such extreme measures taken in the u.s., and that the economy is likely going to continue to do well. so covid is a downside risk. what is happening in the rest of the world is a downside risk. but right now, the of the economy remains very strong and the fed has to respond, and we think they likely will. alix: the belly and the front end getting hit pretty hard in the two-year yield. your top trade right now.
mark: we have recommended being tactically short duration. we think the belly of the curve is what is likely to reprice the most. that is five's, tens. the two-year part of the curve could certainly begin to move in for more than the belly if we start to hear a bit more of a hawkish shift from this new round of fed leadership. we do think they are likely to pivot in the weeks and months ahead. guy: as been great to catch up. thanks for jumping in on such an important day. mark cabana of bank of america global research. we are pivoting now towards the european close. we've got around 34 minutes until that happens. let me talk you through some of the key stocks we are focusing on. erickson making a bid for vonage. the bid seems to be high. it is definitely a day when it comes to the focus shifting over to private equity and its interest in europe as well. you've got reports over the
weekend that potentially apollo taking a look at what is happening in the u.k. grocery sector. marks and spencer in focus. in terms of the move we are seeing with private equity into europe, kkr and its interest in potentially taking out the whole of telecom italia. there's obviously a number of different related parties here that are going to have a view on this. i am waiting to hear exactly what the italian government would have to say on such a story progressing. we will wait and see whether that is the case. telecom italia has lagged. its stock certainly bouncing back today, up by 32%. the european close is next. we will carry on the conversation. peter praet, former ecb chief economist, joining us next. this is bloomberg. this is bloomberg.
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news. the countdown to the close starts right now. >> the countdown is on in europe. this is "bloomberg markets: european close," with guy johnson and alix steel. ♪ guy: 29 minutes to go until the end of trading in europe. we are seeing weakness in the currency market. the dollar is on the front foot. the euro trading with a $1.12 handle. equities are bid, but i would argue rather than the fed news, it is m&a news. the telecom sector leading the charge on the back of the kkr news surrounding telecom italia. the stoxx 600 up by 0.2%. we are also seeing crude plumbing as well. we are back nearly