At the bottom of the statement. New fed vice chair for supervision Randal Quarles casting his first vote. It is all about who donald trump taps to be the new fed chair. If it is going to be governor howell,ell jay get might have made for interesting conversations. The latest word from the white house is we will get that decision tomorrow afternoon. We should mention that even if janet yellen is not renamed renominated, she is gone but not forgotten. She has two more meetings to preside over, december and january. Tom i have to go with a double prediction. Powell or taylor . Lets say it is Michael Mckee, and far more important, dodgers or astros . You have mike to go with the home team and say the dodgers. The papers tell me it is going to be jay powerll. Idea of where the economy is given low gdp. Some people say it is below 2 . To this any umph economy that gives the fed the ability to move beyond december 13 . Mike there is nothing that would change the outlook at this point, which is basically half a percentage point labor Market Growth and 1. 5 percent productivity growth gives you roughly a 2 growth rate. Jay powell says that is what he expects. If that is the case Going Forward and good enough to raise rates three times this year, it is probably good enough to continue raising rates and a 2018. The fed is not incorporating that into their forecast yet. Scarlet expand a little more on what the feds fomc said on inflation. Janet yellen has ruminated there is still a little they are still bewildered by the lack of inability t of inflation to get to the 2 . They use the word soft. Mike it has risen a little because of gasoline prices going it is still suggest transitory factors and it will continue to rise. Marketbased expectations are running low, but surveybased, generally the university of michigan numbers have remained steady. They dont see any change in the inflation outlook. That is the key to the what you think about december Going Forward. Before the hurricanes what was happening . Has anything changed since then . Andread the statement nothing has changed except the labor market has gotten tighter and the labor market is about the same. I may be reading too much into that. That will be a question for the markets, for that is what would appear. I love it. Would move from transitory to soft. Jeff rosenberg, what is the difference between transitory and this new word soft . Jeff i have no real idea. I think they are just trying to get out of this meeting without saying a lot. I was reading to the changes. I dont think we need to over analyze the shift in the data. They are acknowledging what is happening. They are not making any big changes to the economy. Tom bring up this chart. This is a Jeff Rosenberg question so we will go to Julia Coronado for a smarter answer. The blue circle is President Trumps election victory. Up we go with enthusiasm. Down we go. Im sure Jeff Rosenberg will write about it this week. Dr. Coronado, a flatter yield curve. What does that signal . Julia i would say the word soft has a little bit of meaning. They go from transitory to soft suggests theyare coming around to the markets interpretation they are coming around to the markets interpretation. Point nextat some year require a little bit of recalibration about what is the neutral fed funds rate, how fast should the normalized. If inflation stays below 2 we are at 1. 3 on their target. That is a bit of a problem and a messaging. They may have to go a little slower. Move forward but perhaps a little slower. Scarlet recalibration for next year. How much does the u. S. Dollar play into this . The dollar has not had the impact on inflation that they expected it to have. The path seems to be very muted. The narrative they have been telling that they understood the ebbs and flows inflation, actually they dont. It seems to be much more persistent. It is soft. They need to rethink the forces acting on inflation. President of the took the bull by the horns and said if inflation stays low, thats not bad news. That just means a natural rate of unemployment that we can allow the economy to run at may be lower. Tom this is the lollipop chart and Jeff Rosenberg will see the miracle of the bloomberg. As i move the circle up, there we are. Slope matters. We have a little bit of acceleration in the twoyear yield. Bill gross joining us in the next hour. Jeff rosenberg, is it escape velocity for chair yellen . Do we finally have yields getting up from the right . Rut . Jeff that is adjusting to what were low expectations for december. 85 , 86 e pricing in probability for december. In terms of your question around escape velocity, there is not really escape velocity yet. Figure. S a quarterly we are a little bit of a potential. The debate on fiscal, which maybe we get into for tax reform, that is around longer run structural reform think its you out of 2 . To 2 growth environment is consistent with a gradual environment, for a gradual signaling on Interest Rates. The twoyear is reacting. It had been underpricing the december hike. Julia it is a passage of time. The yield curve has not moved up with it. We are kind of getting to neutral and stay there. Tom we see flattening way out of the yield curve. Feel to it. Den jeff you have the refunding announcement. That disappointed some expectations around the supply side. We were focused on the demand side in terms of what is happening to the fed. On the supply side there is a little bit of noise today. Mike, talk about the debt on the feds Balance Sheet. They began the normalization process. Mike will we are getting is a new feature of the feds statement. For months they talked about the possibility of a bounce sheet reduction, than they announced it was happening. Now we just have one line in the statement referencing it saying the Balance Sheet normalization is initiated in october 2017 is proceeding. I suspect we will see that after every meeting as long as it goes on. No reason to say anything more if that is your goal, to just have it run in the background. Scarlet it feels like a nonevent. Jeff that was the goal. Mike pointed out how much they have taken the language out. Desiremblematic of this to shift the Balance Sheet into the background. There is one little line in contrast to how much we have had paragraphs on this in the past. Julia and we have to hit it for handed to janet yellen for pulling that off. Nothing to see, no taper tantrums. Tom is she on the list tomorrow . It is powell, powell, powell. Julia the president says she is. The president has said area bad word about her. She has done a great job and he said so. She is not looking to go up and have Monetary Policy is. Tom this goes back to any number of series of talks in washington. Jeff rosenberg, is the desire joh, or jay, low rate low rate janet . Jeff not going to go into the mind of our president. Clearly the media stories and the lack of pushback on them have solidified powell as the market expectation. It would be a very big news item, a very big surprise to the market. I think we will move forward. We will talk more about what does the rest of the board makeup look like, because that takes on greater importance with a different kind of fed chair than we have seen in three decades. They do not dominate proceedings, does not come from a Monetary Policy background. It will raise the importance of the staff and the makeup of the rest of the board members. Scarlet im looking at this statement. Voting for the fomc Monetary Policy they struck out stanley fischer. Randal quarles is now included as a final name. How will he put his name on this Federal Reserve . Julia he is the vice chair of banking supervision. That is a big job. A lot of his focus is on supervisory and regulatory issues. His background is not on Monetary Policy. My guest is he will be like stan fischer to the hawkish side. He is a republican and a little bit more towards higher rates. I dont think he will be making a strong argument or arguing or contradictory contradicting the chair. Scarlet he will go with the flow . Jeff he will go with the consensus. There is a scenario where you have a makeup on the board versus the chair where it is sort of ambiguous where the other governors lie. Historically the nonMonetary Policy governors have gone with consensus. All staying with us. Coming up, what the next fed chair will inherit. Mr. It is mr. Powell, or mrs. Yellen. We will discuss what kind of repercussions that has. From new york, this is bloomberg. Afternoon. Joining us is the former vice chair of the Federal Reserve system and rinse and professor. Bill gross princeton professor. Bill gross joins us in the next hour. Jeffrey rosenberg here from julia from macro policy perspectives. Because it is sort of a nonmeeting we have the opportunity to go into the nations growth, and the shock had all we will see the tax reform. Dr. Coronado, i suggest for jeff. Of us, not you, not crystal clearer it is not 1986. Bring up this chart. This is the debt to gdp. The green circle is 1986 and Ronald Reagan, the red is where we are. The backdrop of the new fed chair, for the leadership in washington is totally different for tax reform. Julia absolutely. It took years to put together the 1986 tax reform and a coalition of democrats and republicans, and a real sense they were broken things in the tax code. By the way, we are highly indebted and staring at a widening deficit just on tom jeff is the perfect person to talk about the raging debate. The dream here is you have to get 3 gdp. Can blackrock frame that when youre having coffee with larry ink . Jeff you can break it down in terms of components. The big pieces come from investment and productivity. They can be linked. You can create better incentives for more investment, more investment can bring better technology, better equipment to workers who can perhaps contribute we have a huge productivity mystery. If you get investment back up to its historic averages, you are at 3 growth environment. It is not out of the question. Scarlet is there more risk of an underwhelming or overwhelming fiscal policy . Jeff i am a bond guy and im very skeptical, sometimes to skeptical. I think the risk right now is underwhelming. You have all the good news in the aftermath of the release of the unified framework. Those are a set of goals and objectives. We have not seen any details. We will get that tomorrow and that is where the hard work begins. Tom you named your first son 20 deficit. Might twin deficit. Are we heading for a new chair that might enjoy a dialogue over twin deficits . Mike it is possible. Im not sure. It is probably more likely they would be talking about a big budget deficit then increased growth. You can get there, but the problem is a lot of companies have a lot of money right now. Borrowing costs are low and i have not invested. What makes you think cutting taxes will cause them to invest more . Jeff that is the exact thing. The reason they get them to interrupt more is the marginal costs, and the costs of capital. What you are trying to target with tax reform is lowering the cost the capital, lowering the hurdle rates underinvested rates on investment so they have incentive to invest more. Unlike the debate in 1986 which is more about individual, it is hard to frame because it does not sell politically. This is about reforming the corporate side of the tax code. That is where the lift to the economy comes in. 1986 they raised Corporate Tax to lower individual tax. If this is going to create deficits, then it is not going to fly in terms of permanent tax set after 10is may years and companies that make Investment Decisions on a tax rate that may go away. They are talking about Corporate Taxes, may be only two years. Tom if we get a score on what the tax reform is, an lets use a round number, what happens in your world . Jeff there are two kinds of scores. There is a static score in a dynamic score. What we were just talking about is what is the growth impact . If they offset static costs, that is how a lot of the passages running through in terms of some of the concerns around deficits. That is where a lot of the debate will live. Lie. Tom is the secretary too harsh in his jeff abby have seen on this debate, there is a large gap in terms of the perspective. The fight you were talking about, it centers on a very important point in who is going to win the battle. To whom to the benefits of tax reform fall . Mainly on capital or may need a labor . The economists is divided, the literature is divided. Julia another key point is how do you pay for it . If you pay for the individual, you are hurting the demand that Companies Invest for. As how youimportant slice the benefits between corporate and labor. We all agree that cutting the Corporate Tax rate will improve incentives for investment. Tom we can do this for four hours tonight. He has got to get back for the dodgersastros. Julia priorities. Scarlet Jeff Rosenberg, Julia Coronado, mike mckee will continue to stay with us. We continue this conversation talking about the 10year treasury. As the yield the on that after getting to 2. 47 . This is bloomberg. This is the fed decides. I am scarlet fu, here with tom keene and mike mckee, Jeff Rosenberg of blackrock and Julia Coronado at macro policy perspectives. I wanted to bring in this chart. We had to bring it up on a fed day. You can see the fed funds target rate white line going up in a stepladder fashion. Now easier than it was when the fed began raising rates. Do you see any evidence of the fomc folding and concern . It is something that has been brought up in the past. You would think this would rear its head again. Julia i think they are concerned. You are seeing a more vibrant discussion reflected in the minutes around this issue. Bill dudley has a specific framework for thinking about this. The conclusion from the last meeting was that a lot of this is being imported through qe a broad, the china boom. Then it is an open debate about how you respond. It is a reason to keep going even though inflation is missing your target. Scarlet there is a risk of the snapshot is misrepresenting policy and anyway . It might be showing up elsewhere . Jeff i dont think so. I think financial conditions are very easy right now. No matter what you got the indices capture that aspect. With julia just highlighted was a key that limit facing the fed, which is how do you incorporate the financial we have never really seen asymmetric response to financial conditions. We clearly see the behavior of central bankers reacting to overly tight financial conditions. Then they flood the markets with liquidity, but we have not seen it on the other side. This asymmetric response is a real issue Going Forward. Mike i wanted to ask you how you was set up knowing probably the fed is going to raise rates in december and then have a new chair . If it is jay powell, is it steady as you go . Jeff i think part of what the markets like the powell scenario over other scenarios is it is the least disruptive to the investment outlook. You are not really changing dramatically. There are some changes still down the road, the character of the board and the other slots yet to be filled. In terms of potential candidates, this is probably the least disruptive and we will focus more on the data, the economic environment, the role of financial conditions and how that influences the fed path. Tom thank you so much, Jeff Rosenberg, Julia Coronado. Thinks astros. Mike mckee in washington, said troubles. Coming up, really looking forward to this. This is bloomberg. Im Mark Crumpton with first word news. Tweeted thatmp schumer is trying to bring europes policies here with soft immigration policies. The president s tweets come i think were not helpful. I dont think they were factual. I think they tended to point fingers and politicize the situation. Mark Governor Cuomo and new blasioty mayor bill de say President Trump has yet to reach out personally. Major social Media Companies are facing continued questions from two congressional committees, about why they havent done more to combat russian interference on their platforms. The Senate IntelligenceCommittee Questions representatives from twitter, google and facebook, on why they didnt act more quickly when it became evident russians were 20 user sites to influence the 2016 election. It took this committee to get you to look at the authentic nature of the users, and the content . We are certainly grateful for the committees attention that you are bringing to this issue. We think it is very important. We do believe it is a larger issue than any one company. On thehe top democrat panel, senator mark warner said his questions about interference were blown off by the companies until this summer. The United States has voted against an annual United Nations resolution condemning the u. S. Embargo on cuba. That reverses the obama administrations abstention last year. Resolution was over more mainly approved in the General Assembly today, with israel no. Ing the u. S. In voting the vote was the first on the embargo since President Trump took office. Resuming in a criminal case against the Michigan Health director who is accused of keeping the public in the dark about legionnaires disease during the flint water disaster. Charged with Involuntary Manslaughter and misconduct in office. I judge must decide if there is enough evidence to send him to trial. Global news, 24 hours a day, powered by more than 2700 journalists and analysts in over 120 countries. I am Mark Crumpton. This is bloomberg. This is the fed decides on bloomberg television. Im scarlet fu with tom kane. Tom right now, the dow is up 42. The yield, 2. 37 on the 10 year. You dedicate to Jeff Rosenberg quickly, here. Scarlet i want to pick up on that 2. 37 yield, because jeff last week. To 2. 48 we have a chart here on bloomberg and it shows we have been in this range for a while here, over the last 13 year months, the tenure yield. But we did get to 2. 48 . It has been kind of a resistance level. Was it a read herring red herring . I think was a temper tantrum that came around that came out around that straw told tuesday night. I think it was surprising that taylor was so high, at that time , in the running. I think theres just a lot of noise around this decision and you are seeing that show up in the 10year. Thelet it could be kneejerk reaction to a chairman taylor. But Goldman Sachs sees the 10 year yield climbing toward 3 because investors are underestimating the feds capacity to raise rates, no matter who becomes fed chair. I do think the fed is on a set course unless something changes. So, if something changes, they could be that the Global Economy is just not quite as buoyant as it has been . Got through the chinese congress. They want to slow their economy. That will take some of the steam out of manufacturing. They may at some point, have to recalibrate. They are marching forward, but the whole point of gradual is to be flexible and a to dependence, and not to be on a preset course. I think jay powell will definitely continue with that strategy. Tomorrow afternoon, we may get some formal announcement. Dr. Coronado, thank you. Jeffrey rosenberg, thank you as well. We turn now to the former vice chair of the fed, alan binder, author of one of the great textbooks, out of princeton university. And it is an honor to speak to alan today, during this historic moment at the Federal Reserve. During the q a with john taylor didnton, rick michigan mix words on constrained discretion. I think that the case of the actual way the fed acted and the way bernanke he acted, it is completely incorrect to say bernanke was a somebody who was advocating discretion and not being accountable to have a strategy and to be very clear about the strategy. This sounds like something, professor, you would teach at princeton. Set up for us, the next fed chairman and the battle over mies, discretion, and shkins constrained discretion. Constrainedis discretion is a euphemism, otherwise central bankers would of the air,tes out which is they dont do. Inflation targeting is suggested as one way to constrain discretion. The taylor rule would really constrain discretion. Ben bernanke was a believer, i think, in inflation targeting. Chairen, when he became of the fed it just didnt matter anymore because inflation was fading away to nothing. And as you know, the fed has been trying to actually boost inflation a little bit, these days. Powell, assuming hes the new fed chair, which is what i read in the media, is certainly tee going to be a big devont of any of these quasireligious definitions of constrained discretion, or literal restraint on Monetary Policy. I think there is every reason to continue every reason to think he will continue in the bernankeyellen tradition. Thinking about a new macro economics, im sure it is in your classic economics textbook. But the idea here of, can we apply the old economics to divided in income, divided in wealth, divided in education. Is there such a polarity that alan binders economics doesnt work today . Alan i helped not. I dont think so. Where you are thinking about thisary policy, i think very large rise in inequality over the last 30 years or more, has very little to do with the way you do Monetary Policy. , to doot of other things social policy, tax policy, regulatory policy, and a whole plethora of a very important issues, the rise in inequality is potentially, or actually very important, especially when you think about safety nettype of the and the incidence tax system. And for example, we were also supposed to hear tomorrow about how oppressive or regressive you want the tax system to be. If you are looking at the choice is between a jay powell or a john taylor, what is the argument for having a ruledriven dependent modelsfocused chairman, at this point in the monetary cycle, when we are closer to extraordinary kamaruddin the extraordinary extraordinary, rather than normal . Shouldnt the next fed chairman demonstrate a Proven Ability to do that . Yes, i think so. That doesnt mean he shouldnt look at what the taylor rule is prescribing. We speak about the taylor rule. There are many table rules, depending on how you measure things. But here she should be looking at things like that, as indeed both ben bernanke and janet yellen did, during their times as chair of the fed. Its not you ignore things like that, but i think the events since 2008 as shown, as if it needed to be shown, the extreme perils of putting yourself in a straitjacket when you cant predict what the future will bring. Scarlet you mentioned there are many different taylor rules. Can you elaborate . Which of the many different taylor rules could we see, if he is named chair, versus vice chair . Lan thats a good question. Dont forget the extreme difference between the vice chair and in the chair. I was the vice chair, and i can tell you it is not the same. At all. Question, you have on the righthand side, so to speak, of the taylor equation, some measure of inflation, and there are many measures of inflation, and some measure of the output gap, or the unemployment gap, or Something Like that, and there are many measures of that. And then, there is also what has whicho be called rscar, john taylor in his original route made to be 2 , that is the real interest rate. Most people think it is below 2 , maybe way below 2 now. This idea of where our Economic Growth is, it is certainly nowhere near the sident that nowhere near nowhere near the level the president of the United States speaks of. Coming up, my conversation with bill gross about 2. 4 on the 10 year yield. Stay with us. The fed decides. The fed decides. Maybe bill gross will decide. I am really looking forward to my conversation with mr. Gross. The last time we talked, it was extraordinary. He talked about the difference between the 260, and the 240 level, and we are there. Let me get my bowtie straight, as well. Someone who does not need to worry about straightening his bowtie in washington, Michael Mckee. We will pick it up with the former vice chair of the fed. Michael. Worked under a fed chair, when you were the vice dominated the committee. Im wondering if we get a new fed chair, how much difference will they actually make . Operation of the fed and the open market committee, and we are not going to see a whole lot of difference, maybe a little bit stylistic, or could we see a major change like the kind we saw between greenspan and bernanke . Lan we will only see a major change of the economy changes in a major way, or if the president put in someone who is dramatically different from bernanke or yellen. J powell would not be such a person. As far as we know, his views on Monetary Policy are very much in sync with janet yellen. The taylor rule, if you follow it today, says to put Interest Rates much higher than they now are. Can ask, would john taylor actually do that he was in charge . Im a little doubtful. He said he would. But, im a little doubtful that he would. The chairneral point, of the fed is, by tradition and by dint of control of the staff, and by dint of being a spokesperson for the fed, way, way more than equal to the other members. So, you are right. Greenspan was extremely dominant, and neither bernanke nor yellen were that dominant. But it is not right to think, you want to think of them first among equals. It is not equals. Who is chair of the fed, matters. Be a muchould there stronger vice chair, under a powell said, then we might have seen, somebody you might take control of the way Monetary Policy is done or thought about . Wouldnt say control, but i would say more influential, and that would be entirely up to powell. The vice chair of the fed only has influence and power, to the extent that he or she gets it from the chair of the fed worried it is nasa different actually come in that respect, from the Vice President of the United States, who come of the constitution gives basically no power to, but occasionally president s give things to the Vice President , to take care of. Scarlet interesting. It depends on who is at the helm. , the president r has a lot of room to reshape, or shape the Federal Reserve. There are a lot of vacancies for him to fill. Fed governors have 14 your terms and they are staggered to ensure that each president ial term, that president can nominate to governors. That these guys are not serving at the pleasure of the president , and the president cant exert too much pressure on the central bank. Why is it that President Trump has so many vacancies to fill . Alan the only thing wrong with d, andntence is the wor sure. One new person goes on the board every second year. The president gets to replace to if not more. Has never worked that way, and in recent decades, the actual times of service of members of the board has been shrinking. People arent staying anywhere close to 14 years. Coincidence that President Trump has so many vacancies to fill, and a reflection of the fact that president obama wasnt that quick to fill vacancies, but when he tried to, also, the republicans were obstructionist. Left over atminees the end of his term that republicans simply refused to deal with. And now, you have all these vacancies. Is the independence of the said under threat coming coming years . Alan thats an interesting question, it could be. Put thethreat is to nonmonetary functions of the fed under normal congressional appropriations, so the fed would have to go year by year, to the congress for an appropriation. The power to appropriate is the power to destroy, if you dont like what the agency is doing. So i think that is very dangerous. It doesnt seem, it has passed the house. It doesnt seem to have much chance of passing the senate. But if it did, it would be extremely dangerous. Scarlet the power to appropriate is the power to destroy. Professor, thank you very much. Michael mckee, stay with us because were going to have final thoughts on the feds decision today. From new york, this is bloomberg. This is the fed decides congo our special the fed decides. Chiefg us is numbers officer, and Michael Mckee at the fed. Your big takeaways the upgrade language when it comes to Economic Growth. As we look at changes to the statement, there is lots of stuff that you would expect, the hurricanes and the response to gas prices. The fed dismisses the payroll swoon in september. We will see the return of that friday morning. A big pay back. The swoon was, you will get as much back on the other side if not more. They focused on the continued declines of the an appointment of the unemployment rates. The are also buying into handle we have seen a gdp of the last couple of quarters. Before the fed statement i read some reservations about those 3 numbers. Q2 was a response to the q1 swoon and the seasonal adjustment issue we have in the gdp data. In hurricane disruptions inventories and exports. The economy is improving, i just dont think we are at 3 just yet. Nonetheless, they said solid, and that waves in the september rate increase and that raises their conviction about three rate hikes in 2018. Those three rate hikes, i think we might just c2 as we see the impact of the Balance Sheet online, and a stronger dollar bites into the economy. Scarlet the stronger dollar merited one sentence. Tom todays 43 days away from the next meeting. , for me, we are managing our way to instability. We know the instability is out there, with seismic shifts back to whatever normal is. Is notre is this, it delusion, but it is almost a fable that we can do it and a orderly, im this officer, a responsible manager of the american economy, baloney. We dont have a clue. The problem with basing Monetary Policy and what you think is going to happen next year, is because of the lags policy takes, you can get wrong. You can get a wrong either way. Lets say carl is right and the fed hikes onetime this year and two times next year and inflation ends up running away from us, thats a big problem and a means the fed has to hikes, later. The market is still not rising for these two hikes that might happen next year the statement they might, yes, upgrade Economic Forecast that leads them to think maybe they can read the top but the market is still not there. So the could be a lot more market moves a lot more volatility in the markets. Scarlet lets bring in Michael Mckee. Michael, what is on your mind . Michael i dont want to sound melancholy but i think were seeing janet yellen in the rearview mirror. The december rate increases priced into the markets, so after years of saying, what is the fed going to do . What is the fed going to do . After december it really doesnt matter what ge janet yellen thinks. All of our talk of what might happen in 2018 goes at the window until we recalibrated for the new person worried but it would be her, anymore. Thats going to be quite a change. Scarlet is a possible janet could step down before february. Could she step down after the december meeting . Could. I think she has too much respect for the institution, and the stability of the institution. She will serve her term out, especially with someone like a powell who is following her. The three much a continuation. Scarlet, when are we tomorrow . 2 00 p. M. . Scarlet we dont know. Lookinge, what we are for is the god that we make as chairman and vice chairman. And i think we are really looking for sandy koufax and don drysdale. We are looking for the heroes of our youth, the doctor heroes. They are just regular economists and put their pants on one leg at a time, right . You i dont know what a noneconomist does, but maybe jay powell doesnt wear pants. Says going to be hard to exactly how this changes things, but we do know, i think your larger point is correct. They are doing the best they can. It may not be what everybody wants to we should see relatives continued performance. Scarlet lets do the best we can with our guests as to who the next fed chair will be. Representative jayapal. J pol. Powell. 3 00 p. M. In new york. Im julia chatterley. Scarlet and i am scarlet fu. Markets. Bloomberg we are live in bloomberg World Headquarters in new york. Here are the top stories we are covering. As the fed at least Interest Rates unchanged and investors eagerly await President Trumps the central bank, we get insight from bill gross. Fromtop lawyers facebook, twitter come and google, and meddling in the 2016 president ial election. Delayeduse tax wruters the release of their bill for one day. We get the inside story from congressman chris collins. Lets get a check on the markets with abigail doolittle. Abigail we are looking at next trading action for the major averages. The tech heavy nasdaq is trading just a bit lower. Earlier today all three putting record highs but we are looking at next trading action, perhaps dragging on the nasdaq, machine perhapsutgo trading mind that. Not much of a reaction to the fed decision. The nasdaq drifted into the red, after noon. Right around the time of the fed decision, the nasdaq was artie trading a little higher off the lows, and is continuing on that path but is still down, and is still down with its biggest decline for the week. A little bit more reaction from decision to hold rates the same from the 10 year yield. Lets take a look at the intraday chart of the 10year gilts. On the jobs report earlier this morning and started to climb. Thought thisrs could bring some hawkish language into the fed statement but after the fed decision where there was no change to policy, we see a spike higher. Bonds are still trading slightly higher, represented by that one big point decline. Stocks that may influence trading tomorrow, we are looking at facebook, and qualcomm, with Facebook Trading higher. Tesla is down 2. 6 . A lot of the focus will be on that model three production. Can they wrap it up come and will they be able to bring electric vehicles to the massmarket . Gopro is higher and is expected to put up and adjusted earnings profit for the third quarter. And qualcomm, rebounding after yesterdays appleinduced a lot. A big focus of that qualcomm of thatbe the influence legal dispute between qualcomm and apple. Scarlet we will be looking for that today after the close. Thank you, abigail. Federal reserve officials voted unanimously to leave Interest Rates unchanged, while of that legal dispute between qualcomm and apple. Signaling their intent to still hike once more this year. The fed, saying in a statement, the labor market has continued to strengthen and Economic Activity has been rising at a solid pace, despite hurricanerelated disruptions. All this, just one day before the president s highly anticipated announcement of the next fed chair. Tom keene is standing by with a special guest. Tom. Tomorrow, more on tax clarity. Bill gross of Janice Henderson manages a small portfolio there as he has for decades across the bond environment. He is most interested in our economics and the future of the nation as well. Bill gross numeral to have you with us today. Gross, nice to have you with us today. Federal german pal, can he be at chairman can he be a chairman under crisis . Bill maybe. He has been there for the past five years. His experience is really private equity as a salesperson rather than investing. Im not sure what he knows about the innerworkings of the Financial System. I would vote for paul mcauley. He is the one that brought us the minsky moment. He is the one that would have done a better job during the lehman crisis. Powell reminds me of g william last real economy chairman, just before paul volcker. He didnt last long because he didnt know much. Certainly that is the speculation, is how i would put it. With bill gross, we have to look and taylor. Len yellen and chair professor taylor overlap in their economics . Bill i think a lot. We know about the taylor rule which speaks to unemployment, adjusted as it is. Yellen is basically model driven, she is focused on several models, as with gone through her tenure. So i think both are that, their model driven, and i would argue that modeldriven fed chair need, thee not all we moment. We need a subjective type of the fed chairman that is able to look at structural factors, such as demographics and debt, termsraging, technology of its influence on inflation Going Forward, as opposed to a taylor model that looks at the past 2025 years. Tom well get to the deficit in a moment here with bill janice. Thatt to bring up a chart goes from 2. 6 to 2. 4 percent, as scarlet mentioned earlier. We are there now. 2. 4 ,wer yellow line is different from where we were in 2007, the red circle. Bill gross, what are you doing your portfolio now to a deft and adjust to this new level on the 10 year yield . Bill remember last month i spoke at that level, 240, 240 five, hadnt yet been broken. I think its a structural change in the longlasting bull market. It hasnt broken yet. If the fed is serious in terms of two or three hikes going withrd, that puts us at 2 fed funds and the tenyear treasury at 230, 235. Theres not much are you there, so why would an investor take seven or eight years of Duration Risk and longer maturity risk, versus the shortterm securities at 2 . To the pointting where there is not much potential for Capital Gains in the bond market, and ultimately, as i suggested, if that 240, 240 five level is broken, perhaps some capital losses. Tom if there is a capital loss, which is in yields oped prices down, can we do it with stability, does it make for significant volatility, and the emotion that comes with it . Bill i think we do it with spadaro but stability stability and the reason is the quantitative easing is still being used by banks in europe and japan, still 1 trillion of money coming into those markets. We have the german tenyear at and its stills, attractive in terms of u. S. Treasuries. So, those markets continue to dominate the u. S. Treasury market, even if 240, 245 is broken. So it would probably be gradual. Tom i think we are want to see something on tax reform tomorrow. You have written on the nations fiscal position and our financial responsibility for generations to come. And you and i remember this in 1986, the level of debt at that time. Bring up the chart for me, if you would, here. This is the debt of the nation some doubt. All you need to know as Ronald Reagan is over on the green circle, and President Trump is over on the red circle. Can we do tax reform, given the sum total of our debt and our annual deficits . In my opinion. Y, but what is a trillion dollars, between here and there . Let me point out tom, in terms of u. S. Liabilities, the present value of Social Security and medicare and medicaid is probably three or four times the nearly 20 to dollar debt that the u. S. Has come at the moment. Ultimately, these types of liabilities are going to come back to haunt us. Another one to eight dollars, or 1. 520, is not a positive for the markets or for the economy. Om this is really important the sum total of our obligations is far greater than what you typically here, within the media. If we get a rising Interest Rates, can we be complacent if we get the tenyear back to 2. 8 . The tenyear back to 3 . Or does that new, higher yield begin to impinge on our Financial System . Bill yes, i think it does. Many analysts will talk about, not until 3. 5 or not until 4 on the 10 year treasury. I think the u. S. Economy is more highly leveraged than it used to be. So if you ticket basis point move in a 10 year treasury wall, not long ago it wasnt a particular problem but now it is. It is not only the treasury, but corporations and individuals are much more highly leveraged. Say, 30 year mortgage at, 4 versus 3. 5 makes a difference in terms of cash flow and in terms of present value. So, i think 50 basis points, it doesnt induce a recession but it certainly stops an economy in its tracks, in my view. Tom one more question, you mentioned the future vicechairman, paul mccauley, and talking about them minsky nt. That would something that would be something to see, mccauley as chairman. But are we near a minsky moment, at the end of 2017 . Bill no. I dont think so. Minsky moments come when security, as opposed to insecurity, is built into the markets. Stability versus instability. And i dont think we are there, certainly, and most of the world, but in china, which we know not much about, is certainly highly leveraged and potential for a minsky moment, but is highly controlled in terms of capital markets. Leadeverage, ultimately s to minsky moments. I just dont think it is now. Tom William Gross is with Janice Henderson. Thank you. Lets get a check of headlines on bloomberg first word news with Mark Crumpton. Talkingesident trump is about tougher immigration measures following yesterdays deadly terror attack in new york t eight people dead and 11 wounded. The attacker is an immigrant from uzbekistan who came to the United States legally lead 2010. Officials havent said whether he was admitted to the Diversity Immigrant Visa Program which covers immigrants from countries with low rates of immigration to the United States. We want to meritbased program, where people come into our country based on merit. And we want to get rid of chain migration. Diversity visa Program Provides up to 50,000 annual visas i lottery. France today officially lifted its state of emergency for the first time in nearly two years. Speaking in paris, the Prime Minister tried to assure tourists, the country will enjoy what he calls a good level of to its newhanks counterterrorism laws. The state of emergency was imposed after Islamic State attackers killed 130 people in paris, in november 2015. Than 440 thousand people across the northeastern u. S. Are still in the dark more than two days after a powerful storm ripped through the region. At the peak of the storm which began sunday and went into monday, more than 1. 5 Million People were without power. Maine was the hardest hit state, and some schools and public offices there remain closed today. Bahrain is asking its gulf allies for Financial Aid to stave off a crisis. According to people familiar with the talks, bahrain wants to replenish its foreign currency currencyand average a devaluation. Allies are said to have told bahrain to bring its finances under control in return for help. Global news, 24 hours a day, powered by more than 2700 journalists and analysts in over 120 countries. I am Mark Crumpton. This is bloomberg. Scarlett. Scarlet round two of washington versus silicon valley, coming up. Of maine,gus paying telling representatives from facebook, google, and twitter to drink their ceos when they come to town, next time. On the Top DemocratsSenate Intelligence committee, the rating lawyers from facebook, google and twitter on day two of hearings on capitol hill. The Tech Industry carefully, and it is not just democrats. It is republicans as well. Senatoror rubio, cornyn, quite negative. And senator burr and did it on a very downbeat note. Ended it onurr and a very downbeat note. Senator warren is like a very hes a former tech executive and the guy knows a lot. And he was asking very wellinformed questions but in general, i thought they did a better than i would have expected, given my stereotype of congress knowing literally nothing about. Tech. They showed a slightly betterthanexpected savvy. Yesterdayt we heard was that, beyond the election results, the efforts to results, the election were there too. So it has been a painful time for the republicans, as well. The anger makes a lot of sense. The question is, where do we go from here . I think we are in the beginning of a super cycle of somecism, thats a word have used. A super cycle of criticism of these tech companies, for the foreseeable future. See zuckerbergll and Paging Congress before too long. They have to come and explain themselves come at that level. This is not sufficient. Pushback byhere any the general counsels from the tech firms . Recently looked, as far as the line being drawn on interference, we dont want to be the ministry of truth, in rms of filtering information. Just to take facebook, we dont want them to suppress freedom of speech. Balancing those things is terribly difficult but i would say, the lawyers did not really push act much. In fact, at one point, they were asked bluntly, did you do enough . And all three of them said, google, no. Twitter, no. Facebook, no. They dont know what to say or how to say it. My question to you is, what can they really promise, and the ay of a prescription . They are going to hire thousands of people, and their late to the game. None of these prescriptions address the problem at hand. No instant solution. This is not something that can be release all that can really be solved easily, no matter what the will of the Companies Might be. They listed very good steps in the right direction, including hiring people, deploying ai more intelligently, changing rules, adding add disclosures. Those are very valuable things. At this is almost built into the nature, particularly of facebook and twitter, slightly less. Google him a you know you to has problems but i dont think it is at the same level of the other two. Is the one make him that is most in the hot seat, here. And there really isnt an easy fix. To talkell continue about this, but thanks to you david, and patrick. Scarlet he will be back later on. He will. Course facebook will be reporting results come as well. Insight, justs ahead. From new york, this is bloomberg. Julia this is bloomberg markets. Julia chatterley. Abigail join us for options , alon rosen of oppenheimer. What do you make of all this . I would use the russell 2000 as the current tell on where tax reform is going. Respectively, it has been trading positively on the headlines that are construed as to what would be beneficial versus delays that would be negative. We are seeing a lot of uncertainty and i think todays action, with a strong move higher, we side go read and reversing lower. We are using that the goal to buy right now, and any downside exposures, and tech is a little too strong for the time being. Abigail what are the big topics is tax reform, and smallcap is a good tell. Technology sector for the s p 500 is up. When does it end, or does it just it going . thursday we had earnings out from google, microsoft, intel. There were clearly not as highs people thought. So it is kind of hard to see what is going to break that into year end. Facebook, at the close today. Abigail what do you think about that . Alon it is typically long. What is it going to take to get that extra eight10 up . A november 3 weekly, we are buying the 185, 190 call spread, just as a way to get some extra gain on a 3 5 move, which we think would happen on a in earnings report. On an earnings report. Global news, 24 hours a day, powered by more than 2700 journalists and analysts in over 120 countries. Bestil october was the month for stocks in quite some time. You think november will be the same . And he said october had very low volatility. Alon october was the lowest volatility month ever. Now,ink the yearand right and the negative move it is going to become, the rugpull tight move, you are currently running short. We prefer using an option straight, specifically we are using december 29 for selling it to 65 call, one time, and we are 240ng 2. 5 times up to 50, on a put spread. What this does is, you are done break aroundd and 220 on the downside coming to 75 on the upside. So there are a lot of ways to win on this, and the only way to lose his if you dont move in december and the stock doesnt go anywhere. We would just manage that middle area and think this is a great way to add on the downside without adding any premium, upside risk. Sounds like a terrific strategy. What about the vix . With the vix ever come alive again . the vix has been a good way to punt. We got a 1 decline last week, and the vix slightly bit into that. It started going down on the market was going up. We saw 25 higher move on the vix. And when the market bounces back, the vix gets crushed. Gives you the vix tackle Trading Opportunities and we still like using that tactic right now. But we are quite over vix. Abigail great to have you here. Alon rosen. Chris collins joins us to tell us why the longawaited republican tax bill was delayed until tomorrow. This is bloomberg. Retail. Under pressure like never before. And its connected technology thats moving companies forward fast. Ecommerce. Real time inventory. Virtual changing rooms. Thats why retailers rely on comcast business to deliver consistent Network Speed across multiple locations. Every corporate office, warehouse and store near or far covered. Leaving every competitor, threat and challenge outmaneuvered. Comcast business outmaneuver. Word timeime for first word news. Yesterdays deadly attack in new york city the top story. Officials saying the suspect had been planning the attack for weeks. At least eight people were killed and 11 others injured. Its five is mourning citizens killed in the attack. The victims were a group of eight friends celebrating the 30th anniversary of their high school graduation. Secretary of state Rex Tillerson today expressed condolences while welcoming belgiums deputy Prime Minister to washington. We really stand incomplete solidarity with belgium, argentina and all other countries against these acts of terrorism. Once again we have seen the evil face of terror in our own borders. This knows no borders. Other countries have had to deal with his evil that confronts us from time to time. Iran, Vladimir Putin was in the country, and he strongly