cable down 1/10 of 1%. they'll the u.s. dollar. gold, a little bit higher and the vicks still stable. what it wants a meaning for equities, we will tackle that. david: a big day not just because alix is back. itsbank of england with latest monetary policy decision. we will get u.s. weekly jobless claims. at 9:00, republicans promise they will give the details of their tax reform bill. 3:00 this afternoon, president trump will announce his pick for the next fed chairman. jonathan: president trump is jerome be tapping powell. here's what guests worldwide have been saying about the man who could be the next chairman of the federal reserve. >> experience is in private equity as a salesperson rather than investing. i'm not sure what he knows about the inner workings of financial system. >> i don't agree with bill gross'comments this guy not being an economist is a hindrance to his ability to do the job. >> powell has the equivalent of more than one phd in monetary policy given all the time he spent in government and around wall street. >> i think he would probably have to rely more on advice than a burning key or yell and destined been bernanke or janet yellen did. jonathan: it could be subject to change. david: this is president trump. jonathan: it's widely reported that it will be fed chair powell at some point in the future. fromng us, michael mckee four florida, danny blanchflower -- any, let's begin with you, what does it change with chair powell in the hot seat? danny: a continuum appointment. steady as you go. but he is beent there and seen what has gone on. in some sense it's the story that economists have not had a .reat 10 years if you like this is someone who will calm people's nerves, steady as you go. i think it's a sensible appointment. trump realized appointing a hawklike taylor would end up raising rates which is probably not something he wanted to do. i think it's a pretty good homing appointment that will not be much market reaction. he has seen and done it and he will continue the way things are . i think the markets will read it well as long as is no change the comments on wall street journal and others are that he will get the job. jonathan: no phd in economics. we've had a big debate about this. does it matter? michael: it does not matter right now. what happens when something goes wrong? the fed is in a new environment where neutral rate is so low that cutting to zero is not going to necessarily stimulate them, so where does he go after that? the other issue is this, this is the devolution of the fed. individuals -- here's a guy without a phd leading a bunch of economists. he's going to have to be a consensus builder and get the committee to work together. they won't necessarily look at him and go, what should we do. do these what extent criticisms matter given the leadership position mr. powell will have? we have not heard much as he's been in the fed. peter: what is going to happen -- i think them answer should be no. the second thing is what is it going to do to the style in which the fed operates? the fed in the past couple of years has been more consensus driven organization. much more than organization relying on research that's been done rather than the overall empowering chairman. i think that is true since janet yellen is there. i think the likelihood is it is continuing. is notroach of the fed necessarily changing very strongly, at least not over the next 12 to 18 months. that is the take away for markets that is important. alix: the only question i want to have answered is does mr. powell think physical stimulus from the white house can boost growth 3% to 4%? it.y: i don't think we know you started a program saying we're waiting to find out what the tax plan will be. in this case, the devil is in the detail. i'm going to go back to what mike said. one other thing in the sense of the economists around. the economists don't really know or have a plan on what to do to withdraw the stimulus or what the effects are so a consensus builder will be pretty good. in many senses we're driving blind. we don't know what the tax plan is. we don't know what its impact on growth will be and we don't know what the impact is on pulling stimulus away, selling assets off. it's absolutely clear powell will not know what impact the fiscal plan will have on growth -- we will wait to see what the plan is first and there's no consensus among economists on what its impact on growth will be. consensus will probably be good. alix: i asked the question because it raises the point of 's fedng jerome powell will let the economy run hotter. can you talk about what we might know on how he views that? michael: it really does not have a record of being on the fed when the record is -- janet yellen was an inflation hawk in the 1990's. one presumes he would be but this is a different environment where we do not necessarily understand inflation dynamics. he is in favor of gradually raising rates now because inflation is low, but if inflation should break out because the fiscal stimulus may be provided, how quickly would he move? a lot may depend on who gets .ppointed as his number two one presumes they would look for someone with academic experience , economic experience. jonathan: treasury has rallied over the last week or so on the back of the odd shifting toward jay powell. at the moment, the market is trading around the doves for 2018 and i wonder how much of an adjustment needs to be made in this market on the service of things later if we get chair powell a lot of people will step back and say that is a continuity candidate, but the continuity candidate should be above where the market is. it is hawkish relative to the market in 2018. peter: the debate about who is important.ir is very at the end of the day, if you look at those things you just mentioned, they won't go away irrespective of who the fed chair is. the market has been underpricing the fed for quite some time. that's not going to change. until the fed actually start to make moves. we think that's going to happen because we think the economy is strong. very little imbalances. eventually inflation will come back so all these things are likely to happen. about where the market is pricing and how the economy is evolving. jonathan: we await the tax bill. it stay tuned for bloomberg for complete coverage of the president's announcement of the new fed chair. special programming starting at 2:00 p.m. eastern time and we will bring you the president's rose garden announcement at 3:00 p.m. eastern. another decision we're waiting for. the first rate hike on debt potentially in over a decade. coming up a little bit later from new york. this is bloomberg. ♪ david: today, gop leaders will unveil the details of the tax plan or at least their first drafts. we welcome kevin cirilli for a report on what to expect and i did say first draft because as i read it we have speaker ryan saying they will change it over the weekend. kevin: we are supposed to get this bill from the house of representatives. kick starts the clock all throughout the weekend, all throughout tomorrow in which they will be rapidly trying to tweak this thing ahead of the markup on november 6 early next week. and if theyppens can stick to their timetable, they have to get this voted on within the next two weeks. the senate is likely to release their version of the bill the week after next. if they want to get this done, they have to really race through this. things like cbo scoring comments apply. that could pose a potential risk . already you have seen some republicans try to criticize cbo scoring. david: let's assume it's 9:00 and they do come out with this draft, what's the first thing you're going to look at? the cut in the corporate tax rate? kevin: also, whether or not there is -- whether or not they tax the wealthiest of the 1%. that's a criticism we've heard from democrats for some time. the other thing a carefully looking at, the elimination of the state and local tax deduction. peter king from new york has been campaigning against that. to see if any republicans cannot against this and have post-political risk in terms of the vote. with the budget last week most republicans will be ultimately getting on board. how many brackets are we going to have? the president would like to see three but i've been hearing -- i will keep it short. the corporate tax rate. david: we will spend plenty of time with this throughout the morning. thanks very much to kevin cirilli. danny bth us is blanchflower. give us a sense of what you think is most important. , if anythe relationship between the corporate tax cut to ?0% in gdp growth and for that matter, job creation? danny: the major question is whether this is a fiscal .timulus or not is the torpor -- is the tax cut cup in spending cuts elsewhere? the devil is actually in the detail. you will see different effects. if this is budget neutral compared to if this has major stimulus affects. we will see going forward, and it will have a major impact on what the central bank does. if it is a major stimulus, that will allow the major -- the central bank to raise rates so down the road, it will be able to cut rates. i think the devils are in the details. we will see. it's hard to comment on what you call a moving target. alix: fairalix: point. td securities tried to do that and they said that financial equities have a five percent to 7% premium because of regulatory reform. do you agree with that, that it is vacant in some capacity? don't peter: know about those numbers but what i can tell you particularly if i look at the bond market, the bond market is a nine not only for the reason we just heard, the central bank to action, but also if it is a stimulus the budget deficit does not look that great at one point.nded very estimates out there about how much stimulus it might be and how much treasury issuance this might be. we almost evenly are going to see a reaction in the bond market area i don't think that yet.e priced that info wastally agree with what heard before. the devil will be in the details. david: you said we have to look at the details to know whether there is fiscal stimulus here. have we ever in history had substantial fiscal stimulus and economy were we have 4.2% unemployment? danny: no. this is pretty difficult to know. the labore answer -- economist, the way i would do it, we have had fiscal stimulus in an economy with the employment rate close to 60, three percentage points below where it was at the start of the recession. i take the view that the u.s. economy is up love -- is above full employment because of all these people who've left the labor force. the crucial answer, if you look at 4.2% unemployment come in the we've always seen large amounts of wage growth going on. that's a big debate between economists whether we should read the unemployment rate or the employment rate. the employment rate gives you an of -- a poor steer. there is room for stimulus despite the fact that people worry about inflation. power in thebout world when it was lots of inflation. our problem is we cannot create inflation, wage growth. you have to have an explanation for that. we are a long way from full employment. alix: danny is dovish. is that weird? blanchflower and peter schaffrik. we will break it down with our guests next, this is bloomberg. ♪ jonathan: shifting rhetoric from the bank of england. the pound remains little changed . why the expected the central bank will raise the benchmark rate for the first time in over the decade. peter schaffrik, still with us. danny blanche lower of dartmouth. the governor invited the committee to vote on the proposition the bank rate be increased by 25 basis points. six members voted in favor of the proposition. danny, you dissented 10 years ago. think about when it was july 2007. the bank raises rates. at the truth is it was a mistake , because the u.k. economy went into recession seven months later. we know it was a mistake. today it's very hard to actually see anything in the data to tell you to raise rates. relatively high inflation at 3%. it's about the plummet to zero. .eal wages are falling retail sales are falling. growth in the u.k. is horrible, the slowest growing economy in europe. it is hard to actually see any data to tell you to raise rates. i would not be voting for it and be a unanimousto decision. this is another huge mistake. jonathan: reading these minutes are fascinating. i do have a question for you. the risk to supply side argument which means spare capacity a smaller, we are reaching full capacity and inflation forces are just around the corner. if you are around the table, what would you be saying back to that argument to push them back and say you cannot hike interest rates on that argument? danny: there's absolutely no data to sustain that. they are saying there has been a permanent supply side shock. there's no equation to show that . no data to show that. they just made it up. the alternative argument is this is a cyclical effect. the economy is being hurt by slow growth and when the economy picks up that growth will come back. they are just making this stuff up. i would literally say, you're making it up. what's different about now compared to the past? i see no basis for that argument. it's nothing more than making stuff up. peter, totally about the downside of making stuff up. suppose they do raise today and they hold until we know it's going though it grexit? how bad could the damage be? thing, i i may say one hear what danny is saying. package, at the whole productivity growth is dismal. employment growth is going to slow because population growth is going to slow. i think there is a supply side argument to be made. having said that, i totally agree the vast majority, if not all of the inflation overshoot -- that is the first thing to say. if i take the question properly, i think for me the question is not whether we get the rate hike are not, the question is what is going to come thereafter. primed for one next year and another the year after. ethical to coin it in the way that the market can live with that? . think it would be a mistake if that is the outcome i think it is an answer to the markets. he did not get on with governor -- with governor king. i don't see carney and blanche flour getting on. we could tug about that in a moment. we will bring you that bank of .ngland policy decision a little later for the united states, earnings shift to attack. we will catch up with dan ives of gbh insights. ♪ retail. under pressure like never before. and it's connected technology that's moving companies forward fast. e-commerce. real time inventory. virtual changing rooms. that's 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. jonathan: about two hours away from -- futures are a little softer. will report after the bell. before we get to any of that, a u.s. tax bill coming from the house. the fed chair nomination and payrolls as well. for europe, all focus will be other bank of england. to 13211.n everything else in g 10 is stronger against the u.s. dollar -- including the euro. 237 is year yield on -- 2.37 is your u.s. 10 year yield. emma: let's get you caught up. a former private equity executive -- executive who favors gradual interest rate increases. jerome powell to head the central bank. makes thetrump official announcement today at 3:00 p.m. house republicans unveiled their tax bill today. calls for corporate taxes to be cut from 35% to 20% but only for a decade. the estate tax would be phased out and the child tax credit would be increased to $1600. not all republicans are on board yet. in the u.k., theresa may has named a new secretary of defense. gavin williamson will replace michael fallon who quit over sexual harassment claims. fallon says he fell short of standards expected of him. global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. alix: facebook crushed it with earnings yesterday but it was commentary on profit margins and russia -- >> i'm disappointed that you are here and not your ceos. we would appreciate seeing the top people were actually making the decision. alix: that was actually what capitol hill did to us gold big tech companies like facebook and google when they went to the hill yesterday when they did not have their ceos there. you heard mark zuckerberg talk about what the security measures would mean going forward for facebook. i've to rested >> -- i've team.ted our it will impact our profitability going forward. i wanted investors to hear that directly for me. i believe this will make our society stronger and in doing so will be good for all of us over the long-term. .lix: joining us is dan ives he has a buy rating on facebook. quantify what the pressure issue and security will mean for facebook? dan: some posturing going on. growth, of advertising the outlook for q4, all stronger than expected terms of the outlook, 2018, expense heavy, course 45% to 60% increase. they will double the amount of workers in security and technology. not just posturing, overly aggressive in terms of what they are guiding. i think the street will see through this and realize this is something near term could prove to be conservative in terms of the margin outlook for next year. alix: how long does it take to normalize? whereecond half of 18 is it starts to normalize. inst you'll see an uptick terms of spend. they are also spending on a are, video and others. of security,guise there's a lot of underlying spending on newer growth initiatives. that is the focus of investors here and i think the street sees through this and they are in the quagmire, given all the pressure from the area groups. widening down on the ?ill testifying dan: i do think here he was speaking to the point, that security, especially with the crush and meddling situation, facebook, google, twitter front and center, they need to play nice in the sandbox. i think there is a delineation line where you're not going to see mark in d.c. testifying. jonathan: i think some people argue when it is a pr stunt, warning about profitability to , at the same time telling us growth is going to slow down. and every subsequent quarter it keeps us that picking up. dan: fundamentally at think everyone is seen through this, realizing we continue to see multiple expansion. the secular trend, you can't deny. now facebook in terms of just and growth firing on all cylinders. alix: you also have a buy rating on apple stock. it will be the iphone and next impact? dan: the quarter is just the popcorn for the movie, iphone acts. we think preorder demand is about two to one demand oversupply. we think it will be the biggest product cycle they have ever had in terms of 260 million units plus in 2018. x. comes down to iphone b the street wants to see can they .liminate supply issues i think that is the key going into december and march quarter. this is a multi-your buildup for iphone x. jonathan: another announcement that could be critical for apple is when we get the u.s. house tax bill and look at the repatriation tax and what it might be. if they already spent -- have they already raised the money in the debt market? you've seen there's been a small amount of that but they've of gotten the cart in front the horse. in this of the corporate tax. , we believe overall trillions of dollars across u.s. that could be repatriated that would be buybacks, dividends, reinvestment, but there it be a huge fuel in the engine of the stocks is something like that happened. think a lot of stocks would he can that in in terms of that happening. david: as john says is not just russian security, it's also in the tax bill. because of that repatriation issue. joined now by joe perry, a .artner at markham llp talk of 12% globally on earnings they kept offshore. but practical effect will that think >> many tech companies are operating across the world so therefore i'm not sure how much repatriation will actually happen if they are going to deploy growth abroad. i think understanding not only the repatriation but also are we moving away from a worldwide .axation into a territorial tax if we do, future profits will not be taxed in the u.s. additional taxes and revenues for the government. in addition, the money to be deployed will be effective either in dividends, dividend buybacks or growth in the u.s., including hiring people. david: one of the things that bloomberg is reporting as the serious contemplation of handling the so-called pastors differently than we thought. differentiation between manufacturing concerns were there passing it through and reinvesting in planting equipment. what is that about? joe: it's going to be particular in the law how they avoid accountants like myself not paying 40% and pain the lower rate at 25%. the particulars in the law have figured out. there'll be a reconciliation bill to prevent that abuse in the future. it's particular how you carve the law how. visit they differentiation for going to pay 40% versus the 25%. most professionals would love to take advantage of that. has thisve england quote out. i think how exciting it will be for the president to announce the biggest tax cut ever sometime around 2021. joe: kind of like the anticipation of the release. talk about taxes for quite a bit. ,hen you take a look at it now the anticipation yesterday and today, maybe it will be put out. to your point, that's going to a 1.5 trillion dollars. a big shortfall. the way to two in his face that and. by doing that i think there's an effective way to make that will that in miliary effect on the industry? if you joe: have lower taxpayers that will benefit from the $24,000 standard deduction. the property taxes for people beyondke between 200 and , their real estate taxes are very high. i don't think that equates to the same. if you do a calculation, if you -- and therefore the reduction of the rate must the loss of the state tax reduction are the same. middle-class, that creates a problem. david: strong quarter for credit suisse. >> the results are very strong. good resilience on the global bcm david: side. more on how wealth management is driving the banks performance. ♪ emma: coming up, lisa shalit will discuss the tax bill. this is bloomberg. jonathan: moments away from a bank of england decision and here's where we stand. cable is a little softer today. the exception to the rule in the d10 space. down about one third of a percent. euro sterling showing weakness with euro sterling popping back up to 88 pence. , we countled market down to the decision. you'll tire by a single basis point. reagan, bloomberg markets live senior editor and danny blanchflower is still with us. danny:danny: the story in 2017 is that the -- the slowest economy in europe. real wages are falling, people are hurting. the bank of england is going to raise rates based on what? least, if you think the spare capacity and potential things might happen, you should -- andtil they happen looks to me like pre-2008, major mistake, should not be raising rates, probably will regret it especially when we see the fiscal position in the budget. output growth is anemic. this looks like a huge mistake. it's going to hurt ordinary people. mortgages will go up a time that their real wages are falling. i could not be more opposed to it. i would be against. jonathan: i think that goes without saying. what is the wider significance? mike: 90% chance of a rate hike today. a lot of people like danny saying, why are they doing this? is amazing from where i'm sitting. the unreliable boyfriend as mark carney's nickname has come around. it looks like they're going to hike. the question is, will it be dovish, hawkish. most people will be fixated on the voting tally. , that is 9-0 decision likely to be of side in the pound. consensus seems 3 condition. lands and signal whether they are one and done or not. positioning and all the commentary seems suggest we will not see much more strength in .he pound jonathan: we've got a political issue as well. i want to cross over to zurich and bring in francine laqua. the bank of england seems to have conviction around the braves at issue. what's the safety today would set done with the chris response if you look at all the banks, they seem to have a plan. the kind of trading out of there -- he still has to make a decision. jonathan: we've got that interview ready to go. the issue that attracts me is the pivot away toward wealth management in the same way ubs got things done. but stick a listen to what he had to say to you earlier. >> this a october has been like it's a trickyter situation to describe. jonathan: the cost pressure, is it something he is a handle of? francine: the cost pressure has been there for a while, saying he will continue to keep an eye on it. overall, if he thought about your not -- throwback your mind, hughes in a tough position. a lot of investors were asking if he was the right man for the job. it seems the strategies paying off i comes the cost cuts, small but still revenue growth. he's in a different position than he was back then. coming up, another -- david weston's down with lloyd blankfein. cannot miss that. it comes at midday eastern, 4:00 p.m. in london. ♪ jonathan: seven minutes away from the bank of england decision. for the first time in over a decade we might have lift up on fed needle streak. economist forecasts, that is what we are expecting today. add of that, this is what the looks like.on softer by about a quarter of 1%. my creek in a bloomberg and danny blanchflower. i think about how important it might be for the bank of england with the decision they've already made in will announce a couple of minutes, if your bag of the bank of england and you had the situation in the market in front of you, what is the best way to manage this situation? let it drop out of the numbers are actively influenced the fx channel? danny: i think the first thing to be aware of, to bank will always be thinking of -- thinking about a surprise. if they don't make a move today it would not be so -- it will not be a surprise. i sat in the room and i used listen to what the market center i think there's more uncertainty about because they're there'd be concerned about market reaction to these things. the series tightening is alix: we have a question from a viewer. danny: the u.k. economy is running on empty. alix: sharply negative. danny: riven by the stimulus, uncertainty about brexit. utterlyment incompetent. lost a defense secretary yesterday. ,hey're a minority government so the ability of the fiscal authorities to control the jonathan: it's going to have to be yes or no, if they hike in five minutes to they have to come together again in the next 12 months? danny: yes. jonathan: you're going to stay with us. that bank of england decision, four minutes away. , here in the united states, counting down to a whole host of things. water in the fx market is a weaker pound sterling ahead of the bank of england potential rate hike. tv. coverage of bloomberg ♪ ♪ jonathan: trump is set to nominate the federal reserve governor as the next chairman. republicans unveil a tax bill that would cut the corporate tax rate to 20%. the bank of england is expected to hike rates for the first time in a decade. good morning, this is "bloomberg daybreak." the bank of england raised its interest rates for the first time in over a decade. basis points 50 from 0.25% previously. the vote is 7-2, 2 dissents. to 0.5% from 0.25 -- 0.25% previously, the bank of england voting 7-2 to keep rates higher. i want to cross over to london quickly and get you an update on some of the details in this decision and the reasons for some of the dissent. i want to cross over to bloomberg's guy johnson who joins us from the city. ,hat is the reason behind it behind the seven and the two? rates atvoted to keep .25. the interest rate decision widely speculated and talked about, and they delivered the 50 . the reason is simple from a bank of england point of view, they have backed themselves into a corner. andmarkets had anticipated what the bank actually pay attention? i think it did, and the reason behind it is one that inflation is running above target. the economy maybe not as big as one would hope for and as a result, maybe the supply of slack in the economy is not as big as anticipated. i think the 7-2 is interesting. the expectation was that was going to be 6-3 and because it was slightly more in favor of the rate hike is interesting, and it will be interesting to see whether the market speculates about where we go from here. the pound is ticking lower. jonathan: i find this fascinating, cable is down about 8/10 of 1%. here is the question -- has the bank of england potential he done more harm than good with this rate hike and could we see sterling weakness? it is just an argument i want to give to you and hear what you have to say. danny: i think that is quite likely. what is interesting is the two dissenters are the ones that have the most experience on the history of monetary policy decisions. andtreasury representatives between them, attended all the meetings i used to go to. they have an going to mpc meetings since 2006, so i think their dissent will be hugely important. more experience than anybody. i think it will have an effect. it will already have an effect on the pound and this looks like a hugely mistaken decision. we will see the data coming through over the next while. i am trying to get to the bank of england website and you cannot get to it. we are experiencing a high volume of traffic. the u.k. about -- u.k. economy is experiencing a low volume of traffic so i think we will see weakness and they will regret it. jonathan: dave ramsden was president as a treasury representative last time. danny, thank you very much for joining us. what a morning. david: breaking news right now, bloomberg is reporting some details of the tax plan. they have decided not to phase in the cut to 20% of the corporate tax rate. in order to pay for it, it was reported they would not take it in one chunk but they are expected to go to 20% right off. they will not try to repeal the individual mandate. they talked about tampering with health care to pay for some of the cuts they are doing. the real lesson if they are going to 20% right away. jonathan: it is interesting that you bring up fiscal policy. there has got to be a budget over the next couple of weeks in the united kingdom. is this more pressure on the u.k. fiscal policy side of things now that the bank of england has hiked interest rates and taken off that support to the economy? guy: there was this the erotic all caps it agreement between the bank of england and the treasury -- tacit agreement between the bank of england and the treasury. starting to unwind? i am not sure you control a line between the two and see exactly .hat comes out of the budget some speculations we may see changes on stamp duty for the market and a loosening of public sector wages. there is obviously a lot of politics swirling around westminster right now. the market is making its view very clear on what is happening. the market is now pricing the next hike -- if you take a look at the money market it is pushing out the next hike for 2018, september 2018 versus august. you see what is happening with the pound. is voting with its feet very quickly on this, increasingly signaling difficult times ahead for the british economy. jonathan: maybe not the reaction in the market they wanted. the news conference comes in 20 minutes time. joining us around the table, david kelly from j.p. morgan asset management and john bilton. straight out of london, the unreliable boyfriends, now slightly more reliable but not what you wanted. john: you have to remember what they did, remove the emergency cut. there was a decisive view around the table to take the emergency measure off the table. the way the market is interpreting it and the way it is trading in the currency market is that this is likely to be a one and done. what is going to happen now is the focus of the market will return to the budget on the 22nd of november and what philip hammond may or may not be able to get through, and secondly and more importantly, it happens with the brexit negotiations in december. will the european union allowed the negotiation's to move forward to the trade phase? it is not clear that is a home run for the u.k. jonathan: away from being just u.k. specific thomas something happened in the middle of this year where president draghi went out and said maybe it is time to bring in the program and reduce .e, my words, not his governor carney did something similar and then the federal reserve started bringing forward their ideas for reducing the balance sheet. it feels kind of coordinated. what is going on with central banks pushing back just a little bit? john: i do not think there is some grand pact among the central bankers around the globe . sure, they talk to each other and are aware of the economic data but the reality is you have a group observing a coordinated, synchronous up term in global growth and what that means is the requirement for emergency level policy is no longer where it was. normalization is going to be considerably slower in our long-term capital market assumptions. we have looked to the last eight rate hiking cycles. it is likely to be the longest one on record. it is not the fact they are moving together. it is more the fact they are moving at a glacial pace. , j.p. morgankelly asset management has long-term market assumptions now where you look out 10, 15 years. you say the pound is underpriced if you look at purchasing power parity. how do you put that together with this reaction to the pound? david kelly: i think the bank of england will be pleased. britain faces serious uncertainty because of brexit and that is a real wildcard. they need an undervalued currency to help maintain growth , particularly if they run into tougher times with trading. in the long run, i think britain will be challenged depending on how brexit works out. any demographic growth and have had that, what we worry about maybe they will have less immigration and less growth in the british labor force going forward post brexit, and getting back to the long-term capital market assumptions, how the --el force grows over time labor force grows over time is crucial to provide economic growth and asset class returns. downgrading its unemployment forecast, saying slack is limited. if you take a look at what the bank is doing -- the bank of canada is doing, the fed, the boe, are we in a world of central-bank convergence or diversions? david k.: it may be a little bit of diversions for some time. it will take longer for the ecb to get going and longer for the bank of japan to get going. over the course of 2018 we see the emergence that over the longer term we will see re-convergence. in the long run we think the dollar will come down and one of the reasons is eventually these diverting central banks will converge again. jonathan: in the next 12 months if they hike it is said they will have to cut. do you believe that? david k.: i would bet the other way. if the global economy is this good, unless there is a shock to the british economy i do not think it will go into recession. central banks have sort of given up on the way to getting inflation back to target. what is going to cause the next recession? prices riseg asset because of this low level of real interest rates and that is the biggest threat to the global economy. i think the fed is deliberately saying, we are going to normalize and it will be like watching paint dry. i think the bank of england would also like some consistency because the real problems, they are starting to being late. jonathan: asset prices for hawkish canadians, that may be the case. john bilton and david kelly both staying with us jonathan:. the news conference -- both staying with us. the news conference coming up in just minutes where mark carney will be holding his news conference following the first interest rate height from the bank of england in over a decade -- rate hike from the bank of england in over a decade. in new york city, futures slightly negative, down just over a point. this is bloomberg. ♪ ♪ emma: this is bloomberg daybreak. alibaba has raised its outlook for full-year revenue growth after china's biggest e-commerce company reported sales that beat estimates. alibaba was boosted by advertisers, plus it's cloud computing business almost doubled revenue. yum brands got a boost from their pizza hut unit, posting a better than expected three percent increase in same-store sales and got results -- strong results from taco bell and kfc. a have been relying more on business in the u.s. and spinning off chinese operations. intotives have been drawn the u.s. investigation of manipulating interest rates. prosecutors's are looking into the activities of senior officials. executivest socgen were trying to manipulate the libel rate. that is your bloomberg business flash. david: way may not know all the details of the republican tax plan and we do not know where it will end up, but the goal is growth as the printed -- president and congress have said . jpmorgan is out with their and-term market assumptions project long-term growth over the next several years. david kelly and john bilton are still with us. uncertaintiesin such as the tax reform plan and who will be the next fed chair. how do you take those into account as you project growth in the united states and globally? david k.: one of the advantages of going out 10 to 15 years, you can get beyond the personalities involved and look at the supply side, not just the demand side. if you do a lot of fiscal stimulus you will push up economic growth. fewould get another quarters of 3% growth, but our long term capital market assumptions say the u.s. economy will grow by 1.75% in real terms over 10 years. if you can increase capital spending, you can do something about that and if you can increase labor force, you can do something about that. getting back to the tax bill, from an economic point of view you do not really want to see a bigger deficit the that could push up interest rates. you want to see higher personal taxes paying for a corporate tax cut to increase investment spending. within our long-term market capital assumptions, an article on the things that could be done but it all requires a good bit of feed capital. we need to encourage businesses to invest and a lower corporate tax rate and certainty on corporate taxes would help. david: if you talk to republicans, they say that is one of their goals, to increase capital investment and they have various ways to do that such as expensing. that substantially affect? -- could that substantially affect? john: when we look at technology, the u.s. economy is expected to grow at one and three-quarter percent for the next 10 to 15 years. a meaningful boost above that would be a boost in productivity, given that it is difficult to meaningfully pushed up the labor side without significant immigration changes. you need to incentivize that investment. it be through the tax code or the accounting code? there are possibilities. we take a quite conservative assumption and see that with technology, if we accrue 1/10 of the potential upside we see globally per year for the next 10 to 15 years, by the early 20 30's the g3 economies could add $6.5 trillion to their gdp footprint over and above the base case of growth. there is something out there to be played for, and the idea that you invest today and have seed capital is important. the decisions made today will affect the long-term trajectory but we have to look at a very sober expectation for productivity and population growth in order to understand what the supply constraints are for the long-term growth. david k.: all the policy decisions we are talking about today -- the bank of england, the federal reserve -- that is why they are so important because a full employment economy can be an incubator of productivity growth, but they need to have certainty and tax laws in place that encourage investment spending, and i need some certainty we will not overheat the economy and cause higher rates, reducing the ability of corporations to invest. alix: you need a central bank that will allow the supply side to run a little hot for the demand side to pick up. that brings us to mr. powell, will he do that? david k.: the clear positive of jay powell is he understands regulation and is committed to efficient regulation, thinking about how you can have regulation which protects the system that does not impose too many economic costs on businesses. i also think we will probably get a continuation of this normalization process. if we had more of a macro economist they would be more likely to mess with what the fed is trying to do. i think you will see a continuation of the yellen said. it will require more than that -- the yellen said. it will require more than that. if you pass a tax bill with just one side voting for it, who is to say a few years down the other side will not push up corporate taxes and cut on something else? david: john bilton and david kelly, thank you both very much for being with us. the house gop tax bill sets a permanent 20% corporate tax rate. lisa shalett from morgan stanley joins us to discuss that. live from new york some of this is bloomberg. -- new york, this is bloomberg. ♪ ♪ jonathan: the bank of england raises interest rates for the first time in over a decade and governor carney's news conference is just ahead. with us is nejra cehic standing by outside the bank of england. this is probably one of the most dovish central bank decisions i have seen in a long time. someone tweeted me the bank of england has provided ample reasons not to hike after they just hiked interest rates. what is some of the guidance and communication we are getting from the bank of england? beg thet really does question whether this hike just came today because the bank of england had backed itself in the quarter and the markets would be pricing it in. even though they delivered the hike we are still seeing a fall in pound and gilt yields because the market is interpreting this as a dovish hike. what was omitted from the statement was something the bank of england said that the market is underpricing the rate hike curve going forward. that was missing and it really emphasized the hiking path will be limited and gradual. you are seeing the pound falling, the gilt yield coming down. they talk about considerable risks to the outlook, a dovish hike. as you look jonathan: -- jonathan: as you look at the situation this morning, is this one and done from the bank of england? nejra: that was the big question, whether this would be one and done and i have had different views. it looks like what has come out of the statement that it is not one and done, but an emphasis that the tightening path will be gradual. mark carney will have to explain why they hiked today and also how that path will look going forward and what is going to justify it. the reason for hiking rates right now is we have got above target inflation at 3%, but if you look at where the inflation is coming from you could say we should not be hiking now. -- ifsupplied side driven it is supply-side driven, that would be an argument for rate hikes. the fact that we have growth of zero point -- 0.4%. that is another argument to look at here that mark carney is going to have to look at in the press conference in just a few minutes. , another 25 market basis point hike is fully priced in september of 2018 that was for august 2018. what can expect -- what can we expect from mark carney to talk about? omittedhey admitted -- the line about the market pricing in the rate hike path and we have seen a little bit of pricing in from october to september. mark carney is going to have to be very careful in terms of what he says about what comes next. if we get further tightening, he will have to justify why that is going to come because in terms of the fact that the inflation is above target, if it is coming from a weaker sterling or supply-side deterioration, which is what some economists have told me, how does that justify further hikes down the line when you have the risk of brexit? jonathan: what is the base case for the bank of england? is it still optimistic that things will go swimmingly? is that in the forecast? nejra: so far, what they have said, and they will no doubt be asked questions about it today, they have been saying their projections and their actions have been based on the base case of a smooth brexit. this is the big elephant in the room, how can we predict there will be a smooth brexit? and you summit is coming up in december where there are risks coming upu. summit is in december where there are risks that talks will not continue. this is one of the most uncertain elements of the bank of england will have to work with. jonathan: we will be catching up with you a little later. coming up, we go live to the city of london. the bank of england governor mark carney's news conference coming up. the fx market, one dominant story, sterling weeper -- weaker. even after we get the first interest rate hike in more than pointde, we trade at one 3133 -- 1.3133. ♪ ♪ jonathan: from new york city for our audience worldwide, this is daybreakg ." the bank of england governor mark carney works into the news conference to take the hot seat and face i am sure a lot of questions about the first interest rate hike in over a decade in the united kingdom. they raised the interest rate 25 basis points. two dissenting, seven voting for it. dovish munication from the bank of england. we are going to cross over to the governor of the bank of england, mark carney, to deliver the news conference. : the bank ofey england has increased bank rate for the first time in a decade, raising it to half a percent. other -- what i wanted to do in my brief remarks was address three questions -- why have we done it? secondly, what will be the impact? and third, what will happen next? first, whyth the have we raised interest rates, the mpc's primary objective is price stability defined as a 2% cpi inflation target. cpi inflation was 3% in september and it is expected to have risen further in october. it is not so much where inflation is now at where it is going that concerns us. the mpc must set policy to achieve a sustainable return of inflation to target. we must aim to bring inflation back to target and keep it there once the effects of temporary mainly those caused by the referendum in sterling, to dissipate. straightforward. with inflation high, slack disappearing, and the economy growing, inflation is unlikely to return to the 2% target without some increase in interest rates. of course, these are not normal times. redefine the uk's relationship with our largest trade and investment partner and will have consequences for the movement of goods, services, people, capital, and the real incomes of u.k. households. the mpc has repeatedly emphasized that monetary policy cannot prevent either the necessary real adjustment to new trading arrangements or real income growth likely to accompany that adjustment. we can, however, support the economy during the adjustment process. in such exceptional service -- circumstances, the mpc is required to balance a trade-off between returning inflation to at the time of the referendum, the mpc set out our framework for doing so and we followed it consistently ever since. the mpc's assessment of the outlook for inflation and activity published today is broadly similar to our projections three months ago. in our forecast conditioned on the gently rising path of bank rate implied by current market yields, gdp grows modestly over the next few years at a rate just above its reduced rate of potential. growth remains sluggish in the near term before rising in line with household incomes. that trade is bolstered by the strong global expansion and the past depreciation of sterling. is this investment is affected by uncertainties around brexit, but continues to grow at a solid pace supported by strong global demand, high rates of profitability, the low cost of capital, and the limited spare capacity. the mpc judges said there is a little less slack at the start of the forecast period then in august. more fundamentally, the pace at which the economy can grow without generating inflationary pressures has fallen relative to precrisis norms. this reflects persistent weakness in productivity growth since the crisis, and more recently, the limited availability of labor. modeste next two years, demand growth is expected to use up the little spare capacity remaining in the economy, and domestic inflationary pressures are likely to build. low,loyment at a 42 year inflation running above target and growth just above its new lower speed limit, the time has come to ease our foot a little off the accelerator. that will help ring inflation towards its 2% target while still supporting jobs and growth. so what will be the impact of this change? changes in interest rates work through several channels -- rate increases reduce the current cash flows. interest rate increases also make it more attractive to save today to consume tomorrow and less attractive to borrow to spend today. interest rates are one of many influences on exchange rates and other asset prices. will the sheer novelty of the first increase in bank rate in a decade create some uncertainty around its impact? there are some reasons to expect it will be no larger than usual. households are generally well positioned for a rate increase. more people are in work than ever before. only about 1/5 of people with mortgages have never experienced a rate increase. half took outst their mortgages after the ftc introduced affordability stress in 2016 which requires mortgagors to be able to withstand an increase in their mortgage rate to around 7%. 60% of mortgages are at fixed rates and even with this bank rate increase, many households will refinance to lower interest rates than they are currently paying. i will give you two illustrations. by around 30 basis points for those living off the expiring two year mortgages and a most two percentage points for those moving off five-year yields. company balance sheets are generally in strong shape. financial conditions remain highly supportive and demand is growing strongly in the rest of the world, robustly so in our largest trading partner. so what will happen next? as always, the committee will monitor closely the incoming evidence on the economic outlook , including the impact of today's increase in bank rate. to be clear, even after today's increase, monetary policy will provide significant support to jobs in activity. the mpc continues to expect that any future increases in bank rate would be at a gradual pace and to a limited extent. current market yields which are used to condition our forecast, pointorate two basis -- two 25 basis point hikes over the next few years. +++ affect the outlook for inflation and activity, and in this regard, brexit remains the biggest determinant of that outlook. the decision to leave the european union is having a noticeable impact. the overshoot of inflation throughout the forecast dominantly reflects the effect on import prices of the referendum related fall in sterling. uncertainty associated with brexit is weighing on domestic activity, which has slowed even as global growth has risen significantly. brexit related constraints appear to be reinforcing the march slowdown -- market slowdown which has been evident in recent years and the rate at which the economy can grow without generating inflationary pressures. the impact of brexit on the forecast will evolve as negotiations progress. in particular, a reassessment of the economic outlook would be prompted by any resolution of the uncertainty about the nature of or transition to the uk's future relationship with the european union in so far as those changes effect the behavior of households, businesses, and financial market participants. will the direction of that reassessment for activity inflation is not automatic, the mpc's response will be consistent in the framework we followed since the referendum. by continuing to balance the trade-off between the speed of which inflation is returned to target and a support that monetary policy provides to jobs in activity, monetary policy will continue to make its best contribution to the prosperity of the people of the united kingdom. with that, we would be pleased to take your questions. you, i always remind please give us your name and the organization you represent. you will need to keep to one question. >> i am from bbc. many millions of people today, their cost of living will go up. real incomes are falling, the economy is subdued so people are struggling to make ends meet. can you understand they simply will not understand why you decided to raise interest rates today? if i could briefly ask you why you disagree with the governor. the first thing i would say is that the rate of growth is slower than historic norms, but not subdued. i think we have to get used to all, this is after an economy operating with unemployment at a 42 year low, more people in work than ever before. this is not a false read on the unemployment rate. people are in the labor market working, and the degree of spare capacity in the economy is very limited. so the question about the speed limit of this economy going forward will be increasingly determined by the rate of productivity growth, which as you know, has been very slow since the crisis and is expected to be so going forward, even though we have some pickup. we are a step back, what doing is easing our foot off the accelerator. this is a modest adjustment in interest rates. it will have an impact on borrowers over time. immediate,e a more positive impact on savers in terms of deposit rates. it leaves monetary policy in a position where it still is highly supportive of jobs in activity, and you can expect it fact, it is the policy that is providing the boost to the economy relative to headwinds from other policies including fiscal policy, and the uncertainty associated with brexit. in terms of household financial positions, they have been difficult over the course of this year with the real income squeeze. the worst of that real income squeeze is ending. this is part of ensuring it does not come back. in other words, and sharing inflation returns to the 2% target in a sustainable manner, in a way that supports the economy, that supports keeping people in work and moving forward. in terms of dave? thank you -- >> thank you, governor. all of us are here, as is always the case, to explain the decision the mpc has taken today , reflecting our commitment to transparency. you will see there is a paragraph setting out the high level view of the two members of the mpc who did not vote for an increase in bank rate. they will have plenty of opportunities to explain in more detail my position, but today is about the mpc's decision. >> it is the first rate rise in a decade, but i think the last time there was a rate rise cycle was about 14 years ago. i just wondered if all other things being equal, we did not get any surprise negotiation outcomes of brexit, could we see this as the start of a rate rise cycle? gov. carney: the first thing to we have stressed in all our communications in the forecast, our forecast is conditioned on a market curve which has two additional rate increases over the forecast horizon, and we need those two additional rate increases in order to get that return of inflation to target. in fact, if you look closely at the forecast, inflation approaches the target, does not quite get there, and the economy is likely to be in a position of excess demand, in other words running a little hot. the judgment of the committee has been that that is the right way to balance the trade-off at this point. there is another way to illustrate the point, which you may be familiar with. we release another forecast which is just one that has a constant rate. the constant rate is the half a percentage point at the rate which we have just moved the bank rate. ,f you move that to two years inflation is just below 2.5% in the economy, unemployment is less than 4%. the economy is running above its potential rate of growth. -- and thatnd strikes as a trade-off beyond the tolerance of the mpc, to be clear -- i would remind of one other thing, which is that our normal horizon to return inflation to target is 18 to 24 months. as we are in exceptional circumstances, because of the headwind, the real income shock and other factors, we have stretched out that horizon. there are limits to the degree that we can do that. and certainly, when the economy is in a position where more people are working than ever before, very limited spare capacity in companies, and when the rate of potential growth, , ituctivity, is quite muted does require some recalibration of monetary policy. start, you said an important caveat which is subject to some major development on brexit. as i said in my opening remarks and we said in the mps, if there is resolution of some of the big questions around brexit, transition deal, deal on the in-state, you would expect that to affect how the economy functions. you would expect that to change the economic outlook and if you have those components, you would expect recalibration of monetary policy. monetary policy has the advantage of being the most nimble of the macro economic levers. i would caution, though, the consequences of resolution on brexit, this is something we have said since before the referendum, are not automatic for the path of inflation. does not necessarily go in one direction. hugo duncan from the mail. what impact do you expect this rate hike to have on savings banks and others be passing it on in full to savers? gov. carney: i will ask dave maybe to supplement. we do expect it to be passed on. thanks did pass on the cuts to their depositors and we expect the competition to push it in the other direction. obviously, we would watch it closely. i would say as well in terms of the short-term dynamics, since there is a lot of fixed rate mortgage debt now, which will not change in the short term because of the bank rate most consumer credit is relatively insensitive to the level of bank rate since there is so much spread on top of it. if credit card fees are in the high teens percentage points, the bank rate does not make a difference. student loans are not effected. on the saving side we would expect pass-throughs. seeingady we are reflecting what has been happening in markets. the average rate on fixed rate saving products has been going up this year so in one or two-year fixed-rate bonds we have seen increases of .2 and .2 ,r -- .4 on the rates this year so we are already seeing some anticipation. ed from sky news. one of the interesting points that you have talked about is the potential supply growth andmate being at 1.5% potentially quite a bit below where it would have been previously. how much of that is down to long-term secular trends and how much is a brexit effect? gov. carney: i will start and pass to ben. the first point is, the big news , this issue has accumulated since the crisis, as you recognize. the long period of lower ofestment, the long period core process investment, if i can put it that way, for total factor productivity growth. and it did not really matter for the speed limit of the economy for a period of time because we had so much spare capacity in the labor market. there is a chart in the inflation report, i think at the start of chapter three, which shows basically all of the growth had been supported by an increase in labor supply. we are getting to that point, not surprisingly with the unemployment rate and participation rate very high, with a shift in a lower rate of net migration, those factors mean much more labor supply comes in. these long-term factors are starting to bite. -- that is the biggest part of the story, to be clear. is theductivity puzzle biggest part of the story. it has been reinforced over the course of last year by some of the brexit effects, and they are twofold. one is just left investment -- less investment, and i think we have pointed this out in the past. if you look at our may 2016 forecast for investment relative to our august forecast, it is about an 18 percentage point difference or so at the terminal point of the forecast, the common terminal point in 2019. the second thing is around total factor productivity or products -- process investment. one of the challenges which is just starting to show up, and it very much depends on what kind of final arrangement is negotiated, is a supply chain affect. we are seeing some of that. i would just reinforce that what we are saying is, i'm going to reinforce this is reinforcing something that has been there as opposed to something that is totally new but just started last summer. >> just flag again the graph the governor mentioned, on page 22. ,t makes pretty clear, i think how unusual this period is, how much of the growth -- almost all of it over the last decade -- has come from increasing labor supply. mostly employment growth. there has been a period, a 10 year period where there was no productivity growth but you have to go back sometime in the 1960's or 1970's to see that. unique to the u.k., although we have probably felt it more severely than others when productivity growth has slowed in almost every advanced economy since the crisis. it has been more severe in this country than others. i think the committee has identified on top of that, things the governor said since the referendum that are probably reinforcing that trend and will continue over the next couple of years. one other thing i will point out , we have not changed our view since august. this is not a new development since august. it is not something that was suddenly done and we decided to raise interest rates. it is clear that the -- is continuing to edge down. slack in the economy has narrowed. that blue bar in that chart doesn't have much room to contribute on the sort of scale it has done in the last few years. >> jason douglas from the wall street journal. this increase in bank rate is coming at a time when the federal reserve is raising interest rate and the european bank is signaling it will begin paring back its stimulus in january. are we having a bit of a moment in central banks post crisis when people are beginning to move together to withdraw stimulus question mark do you feel part of that -- withdraw stimulus? or is feel part of that this responding to the peculiar situation in the united kingdom? gov. carney: the global economy is firing on, i think we say most cylinders although i think we need a 12 cylinder engine to say most cylinders. it is 11 out of 12, the economy is doing well. just draw your temperature to capital goods chart, it is almost off the charts in the report, so it is not surprising that as growth is picking up in a number of jurisdictions, that the stance of policy is changing and it is not surprising for those economies that are particularly open, that it is having some influence. all of that is there. possibility,me some possibility of movement upwards over time in equilibrium rates as well. particular to the extent at which this is an investment led, or heavy investment component to the global recovery. is participating a little less in this global upswing. we are participating in it. that exports make an important contribution to growth. investment is stronger and is helped by global growth. it is not as strong as it would normally be and we are going through a period in part caused by the fact that we picked up earlier than europe, in part caused by idiosyncratic issues here. it is a relatively unusual period of underperformance for the u.k. at a time when the g7 is -- at least the doing as well as it is. globally,nized hiccup -- pick up globally, it makes sense. everyone bound by their own institutions. we have certain unique elements here that we are grappling with. news here at a lot of people watching will be delighted and may be surprised at you think wage growth will pick up. can you explain why? gov. carney: we think -- a couple things. to make two points on the real income squeeze, there is two elements, inflation coming down and your question about wage growth picking up. let me be clear on the former, the first element, we see inflation going a little higher in october, but then as we get into the turn of the year -- jonathan: that is the bank of england governor mark carney, addressing the press after the first interest rate hike in over a decade. if you want to continue following best you can do so on the bloomberg terminal at live go. to continue following this news conference in its entirety. in new york city, we will pivot toward the other main stories, including the fed chair nomination and the details of the tax will we could get any moment -- tax bill we could get any moment from republican leaders. ♪ who knew that phones would start doing everything? entertaining us, getting us back on track, and finding us dates. phones really have changed. so why hasn't the way we pay for them? introducing xfinity mobile. you only pay for data and can easily switch between pay per gig and unlimited. no one else lets you do that. see how much you can save. choose by the gig or unlimited. xfinity mobile. a new kind of network designed to save you money. call, visit or go to xfinitymobile.com. ♪ jonathan: trump is set to pick jay powell, the president is set to nominate the federal reserve governor. publicans plan to unveil a tax goal to cut the corporate rate to 20%. after the bankes of england hikes interest rates for the first time in over a decade, with signals another increase is not imminent. from new york city, this is ." i amerg daybreak jonathan ferro alongside david westin and alix steel. let's begin by whipping through the market action, futures go absolutely nowhere. cable." i am jonathan ferro alongside david westin down one full percentage point at 1.3 112 with what must be the most dovish hike in history from the bank of england, at least in recent memory. weasuries catch a bid as await the tax plan from house republicans and the official nomination expected later today from the president of the united states of fed chair powell potentially. we awaitalix: some of the movers ie market, tesla is front and center, down 6% in the premarket. this will be the worst day for the stock since early july. was $1.4 billion and it pushed back the model three production target until the end of the first quarter. although baird says you want to buy the stock, nomura warning that more financing may be needed. shocking. also looking at facebook, shares down by as much as 1% in premarket. citi.ve jpm, jeffries, barclays all raising. revenue rose in the third quarter 47%, but what will it mean to its future when it has to combat d.c.-russia intervention into the election? alibaba, cloud revenue rising 99%. 540 million people log on at least once a month, that is almost two times the entire u.s. population. monthly users rising 20%, crushing it is an understatement. david: if you look over to china , what is going on with the tech companies is amazing. jonathan: i like talking about tesla. a colleague message me that elon musk is the unreliable boyfriend of the auto world. he promises and does not deliver. alix: and uncommitted. david: as i understand it, he will produce fewer cars and spend more money. $1.4 billion. an extraordinary amount of money. jonathan: by the debt issue that came out a number of weeks ago. david: there will be a new one available soon, i expect. jonathan: the search is over for the federal reserve. president trump is set to be tapping jerome powell to lead the fed. guests what some of our have had to say about the man who could well be the next chairman of the federal reserve. >> governor powell, we know him. we know him. he was there for many of the extraordinary policies. he was they are getting off of zero and drawing down the balance sheet, so we know his direction is very similar to janet yellen's, except he would be yellen but light on regulation. equities would take that very well. >> i do not think whether it is power -- powell or taylor, the two front runners, will be able to do anything materially different for the next six to nine months. it is at the jackson hole symposium in august that they come out with new plans. if they were asking me, i would say powell. >> i think the market would view that as yellen 2.0, a much less controversial or uncertain pick if they went with taylor or warsh. the market would be a little unsure how to price that. i think they would view jay powell to be somebody with much more continuous and the policy we have been experiencing. jonathan: the president is said to make an official announcement later this afternoon and until it is official, it could be subject to change. joining us is michael mckee. j powell in the hot seat. what does it mean for the hot -- for the federal reserve? michael: it probably means steady as she goes. fromeal question -- a year now when economic and financial conditions may change, if the stock record -- stock market continues to set new records, what does he do? we do not have a good record. he have a lot of jay powell's comments on what he would do under the current economic circumstances, which is keep going as janet yellen had, but we do not know what his long-term view would be. that is what we will have to find out and we may not find out until it actually occurs. alix: looking at some of the headlines from the republican tax plan, said to fully repeal on state -- estate tax january 2024. david: there were proposals they would do it right away. this is helping your rich friends, because those are the ones that will benefit. this is saying we will help them not for a few years, and save them money in the interim. alix: the seems to be our reporting, not just the entire document coming out. does this mean the phase in tax plan, if we are phasing in a tax cut? david: bloomberg earlier reported they probably will not phase in michael mckee and a corporate tax cut to 20%. we will give you the tax cut right away but you rich people when you die will still have to pay taxes for a few years. michael: this is trying to make up the pay. if they eliminate the estate tax, it is a small revenue maker but it is the way they fill the whole keeping the tax rate the way it is and keeping it permanent, so that is the reason they are doing it. david: it is also very important politically. is this middle tax or rich people? the democrats focus on the estate tax benefiting the rich. michael: the whole battle over tax reform will be is this for the rich or the middle class? most americans define themselves as middle-class, so that is the political aspect. keep in mind, this is the house ways and means bill that will come out and it may be amended, we are told, before monday and in the senate has to come up with a bill so anything we are reporting today will probably not be what is in the bill when and if it finally passes. jonathan: kevin cirilli joins us , our washington correspondent edc -- in d.c.. this will rattle some republicans who wanted an immediate repeal of the estate tax. how this will play out with democrats trying to per tray this as only a plan to help the wealthy, republicans say it will help everyone. the big takeaway, there are some rumblings behind the scene of a return of the border adjustment tax, backdoor border adjustment tax. i am hearing their concern about a potential consumer tax. the politics of this is where it gets interesting, because retailers have been out in full force lobbying against the border adjustment tax, and they thought it was dead on arrival but now they are hearing rumblings and i do not want to speculate. if that is in there you will have a lot of strong lobbying groups lobbying against this on a couple of different fronts, whether it is retailers or other groups including the estate tax. the phase in period will be interesting to watch, and finally, let's take a look and see whether or not the taxes for the ultra-wealthy, the richest of the rich, whether they are getting a tax break. jonathan: it will be interesting to see how many other tax cuts have the words "phase in." michael: what kevin is talking about, the border adjustment was taxing both sides. this is what they call an inbound tax. you put a tax on items that are produced elsewhere and sold into the united states either by u.s. companies or foreign companies. it's sort of goes along with donald trump's tax reciprocity mantra but also another way to raise rates. another thing to keep in mind about the highest tax rate is yes, 39.5% for the wealthiest but most of their income does not come from wages and salaries . it comes from investments, so they still may do better. have to see what happens with taxes on dividends and capital gains. david: going back to the border adjustment tax, the inbound tax, the walmarts of this world will not be happy if there is a tax of things coming across the border. they are trying to get down to $1.5 trillion of deficit. every time they come up with one , someone is going to stand up and say, that is not for me. every time somebody is going to be hurt. michael: that is the problem, you have got to spread the pain widely enough that members of congress can say to special interest groups, i cannot fix you because i cannot fix him and painl have to share the and in the long run, we are all better off but it is a lobbying frenzy. double the standard deduction is what the president is talking about. more people will take the standard deduction. fewer people will itemize and take the real estate tax credit. realtors do not like that. david: kevin cirilli in washington, i know we will be coming back to you, and michael mckee will be staying with us. jonathan: the markets do not know what to do with any of this. we are about 20 minutes away from the opening bell, futures treading water, dead flat on the s&p 500 and dow futures as well. the fx story is about sterling, a dovish hike from the bank of england. we are down about 9/10 of 1% the cable at 1.3131 and conversation continues in new york on fiscal policy and the future of monetary policy. this is bloomberg tv. ♪ david: this is bloomberg, i'm david westin. breaking news as we begin to get bits and pieces of what is the republican tax plan. so far, they say they probably will not phased in the cut to 20% of the corporate rate, they will do that right away. they will phase and the elimination of the estate tax or what they call the death tax. that will not take place until 2024, and they will not mess around with health care. they will not do anything with the individual mandate. we welcome lisa shalett from morgan stanley, head of investment and portfolio strategies. i love that title. and from boston, jeffrey klein drop. michael mckee still with us. let's start on taxes. what is the most important thing you are looking for? lisa: it is the question of whether we get a big enough drop to the bottom line for corporations for it to matter, number one. is it a one-time hit to wealth and the stock market, and is there anything linking any of the deductions to capital spending, or things that might actually help economic growth. one of our hypotheses has been that this will be a one time hit that helps the stock market that does not do a heck of a lot for the economy this late in the cycle. david: are you concerned about deficit spending and how they will pay for this? unemployment and a big fiscal stimulus is a bit odd. lisa: it is odd and somewhat unprecedented. one of the things we are looking for is the extent to which this will be deficit financed and if it is and will add to the supply of treasury issuance we will see next year and in years later putting pressure on the curve. 5% remych stocks have a and when it comes to repatriation of potential tax plans. what do you think is priced in question mark jeff: if you look at the performance of the market, there is some element of repatriation that could benefit. bottom line is, what this means when you are cutting corporate tax rates is most sectors, most companies have a lower effective tax rate than the statutory tax rate we are talking about being cut. financials,true for which pay something close to the statutory tax rate, yet financials have been a laggard this year. , theesult of this expectation that this will happen and the way it is proposed is not yet priced into the market. tech is the sector with the lowest effective tax rate, in the single digits and the least direct benefit, yet that sector is leading the market this year. i do not think the markets have priced it in. we will have to see how this goes through the market price us -- process and how it gets approved. i do not think this market rally is pricing this in. jonathan: talk to me about the mood music. in"e get this line "phased repeatedly, how is the market going to take that? jeff: it is probably not going to do a whole lot. we are not seeing much reaction in futures, and i think that is to be expected when you are looking at a gradual change and one that is sort of a microcosm with the u.s. everywhere else around the world , we have seen major corporate tax cuts in almost every major company -- country. the u.s. is a laggard in that. global companies have benefited from lower tax rates around the world. we are may be going to finally see it in the u.s., but the effect on the bottom line is muted. alix: which is the good scenario and which is the bad? if you get a phase in you will probably not get an aggressive fed. if you have a corporate tax rate 20% in january you will probably get a more aggressive said. how do you structure that with a new fed chair? lisa: i think the market is already underpricing the fed rate path, with the fed signaling they could do as much as another 75 basis points after december. 2%ing the fed funds rate to by the end of 2018. if we get an aggressive tax bill, that underpricing and the bond market is even more profound. we have said, we get an aggressive tax reform in 2018, it's supercharges the exuberance of the cycle, pulls a lot forward and sets us up for maybe some good times through june, and then a rethink of this andet as we head into 2019 2020. david: we have a viewer writing in with a good question -- what happens to the effective tax rate if that corporate tax rate goes down to 20%? does it go down a percentage point? do we know what happens? know, but weo not would assume it would be close to 20% because to pay for this they have to get rid of tax expenditures and tax breaks to corporations get so they would not be able to manipulate their taxes lower. on the whole idea of moving to a territorial tax system where they are taxed on what they make here, which is what jeff was talking about, instead of what they are taxed around the world. they also talked about putting a worldwide minimum tax on so you cannot say we get taxed on where we make it so we will move to ireland where we can make it cheaper. that hurts the tech companies so that is something they will not like. it will be different for every industry, but it is supposed to be simpler. that may not be. david: that sounds fair. jeffrey kleintop and michael mckee, thank you both for being here. lisa shalett of morgan stanley will be staying with us. jonathan: the plunging in the premarket after the electric carmaker recorded a quarterly loss and pushed back production targets for the model three. this is bloomberg. ♪ ♪ tesla shares plunging more than 5% in premarket as they reported a record quarterly loss and a cast burn -- cash burn. the electric carmaker having trouble overcoming production problems and that threatens its viability. elon musk talked about those delays on the phone call last night. >> we expect to achieve 5000 model threes a week in late q1. this is a relatively small shift. the model three is a 10 year program, so we are talking about a few months at of a 10 year program. alix: for more, we are joined by -- a standard & poor's analysis. but me start with you. we have always seen by the dip. -- buy the dip. why might this time be different? company would still have access to the capital markets, but it is taking the results negatively because one, i think of the high valuation and two, the cash burn as you indicated, was more than expected. we knew they were going to have a bad quarter because they announced the production results, but it was worse than expected. that said, i do not think this one quarter makes a difference. q3 was never make or break but they have to get back on track. alix: when you take a look at by theet debt tripling start of the year, if you bought that bond how do you feel about it if they have to the market? the model three is not performing. >> it depends on how long this continues to not reform. if it is one quarter and they get back on track and start to sell the cars, meeting they bring cash in as they deliver .hem, then it would be ok they have three and a half billion dollars of cash on hand at the end of the quarter. it is really the long-term view, or medium-term view. on one hand, you want to say this is a one quarter delay, no big deal. he did compare their production to don tays divine comedy divine about -- dante's comedy talking about levels of hell. alix: i like the perspective, levels of hell, model three production, it is not equal. what would you have to seek get more positive on the stock, what kind of model three deliveries? efrain: we want to get them back on track to meet their objectives. 5000 atthey made the the end of the fourth quarter or first quarter, that is not material because once they get things going and the demand is there, things should be good for them. as far as when exactly we will change our opinion, there is a much of different variables. one combination of the price going down and two, the loss estimates narrowing, those are two things. alix: lisa shalett of morgan stanley also with us. it would not surprise me if we had to buy the dip in tesla. what does that say about the search for yield in the market? lisa: it is about a secular growth. one of the phenomenon we still have in this market, even with an economic and cyclical upturn, is the secular growers, those tax dots taking leadership in this market. i think there will continue to where people- bid see secular growth or believe in it. alix: thank you very much. when they went to the bond market didn't they say, i have got to buy it because someone else will buy it. jonathan: i want to get paid. the company is burning through cash, and that is evident, a massive reach for yield. the opening bell up next on "bloomberg daybreak," we are four minutes away with futures treading water ahead of the president's announcement on the next federal chair and as we await the republican tax plan. ♪ is this a phone? or a little internet machine? it makes you wonder: shouldn't we get our phones and internet from the same company? that's why xfinity mobile comes with your internet. you get up to 5 lines of talk and text at no extra cost. so all you pay for is data. see how much you can save. choose by the gig or unlimited. xfinity mobile. a new kind of network designed to save you money. call, visit, or go to xfinitymobile.com. jon: the opening bell 28 seconds away. futures are going nowhere. we did print another intraday record high. another one amongst many we've had through 2017. dow futures a little firmer come up .1%. the story for global markets is the announcement of the fed weir a little bit later, and will get payrolls friday. there's so much coming through the market, but little price action at the moment. nowhere.e going the dollar is really rather stable. softer on the margin against but so much a0, stronger against sterling that it warps what's happening on the dollar index. the pound is down one full percentage point against the dollar. that is the cross asset set up going into the opening bell. flatter,retty much slightly lower nasdaq. the s&p down two points. the dow jones unchanged. we did get solid economic data that came out at 8:30. productivity rose 3%, jobless claims lower than expected. not a lot of movement within the equity market. we are getting a lot of earnings, driving a lot of the stock market. quarterlyurce bergen, profit better than estimated. the stock is still up 1%. autonation up 7%, third quarter tops estimates by 20%. auto sales are mostly better in the last two months. it announced a partnership with google on driverless cars. 21%, cut itsds off guidance by 9%. brands.l we will talk about earnings versus the s&p versus tax reform. the blue line is the s&p, the white line is the trailing 12 month earnings for the s&p. they move in lockstep. i want to point out, over the seen aw months, you have stalling out there when it comes to those trailing 12 month earnings, despite the fact s&p has been continuing to rise. we had some stall out and then eventually a reversal or a continuation higher. do we see that continue to today or do we need some fiscal boost to justify where the earnings are right now? tesla getting hammered in the market. let's see what's happened to apple. jon: mark lehman is the do we need the tax toorm, the tax cut package really validate where the s&p market is? mark: needed is probably too strong, but we will get something. it will be skinnier than the grand bargain some people are talking about. the market is expecting some sort of tax reform. corporate america will get something. it's not the grand bargain some of us are talking about. jon: to what extent has the anticipation of tax cuts already stimulated some corporate activity, some economic activity? lisa: it is happening vis-a-vis confidence. we have seen a sustained high level of cfo confidence, small business confidence, it is starting to turn into some capital spending. we saw the productivity numbers jumping at 3% annualized growth, a much more normal, healthy cycle type economic growth. that's where we are seeing it. i don't think you are seeing it in the forward earnings estimates of this market. and the sell side has been extra nearly conservative in waiting for the details and not trying to front run what's coming out of washington. right now, earnings are driving this market, earnings will continue to drive the market. we don't need tax reform to get this through the first two or three quarters of next year. we have economic momentum driving those earnings. folks will wait and see about the details. david: we are 75% over through this earnings season. do you see any indication that this bull market is starting to get long in the two? that's long in the tooth? >> we are at that point right now. we need to catch up to some of the enthusiasm and the market may be a little bit overbought. as we alluded to just a moment somewhereense is that ofween 138 and 145 earnings next year, this could power to 2700 even without a tax-cut. apple with this massive .oad of cash overseas i keep asking this question of if they've already spent it. mark: i don't think so. the story on the stock is still driven in terms of what they show an innovation. they are a quite company, they tend to underpromise and overdeliver. you have this explosion of good news when the x launched earlier this week. i expect them to continue to innovate and be a leader in those fields people are talking more about. apple is still a company want to own and relative to the faster this issaying stocks -- a stock you will want to own through 2018. alix: it's all concentrated in a handful of stocks. is that true? lisa: that is not our assessment. we know that story. market,p has led the but this is a market that has good breadth. a very robust number in excess of 60%. that's one of the things that has kept it going. alix: we will hear some commentary from apple about the global recovery. china sales for them were not so great last quarter. what can we expect for them? what is the read through to the global growth story? good growthll see a story and good receptivity to some of their new products. china has been a little bit softer for them. of otherheir adoption phones besides the apple ecosystem has been a bit slower in china, whether that's because a push or pull come i don't really know. globally iscosystem still charging ahead. i don't think ou anything out of china will derail that. david: i don't remember another time in history when we put a product -- we've had a product driving a stock that isn't even out yet. mark: you have a product -- the few reviews we read have been glowing across the board. maybe that's the beginning of the leading edge of the curve for them. this is clearly the driver for the story right now. all reports are good. they have been such a leader in innovation for sothis is clearlr the story right now. long and there have been few leaves of that next technology where you got -- those leaps have been great catalysts for the stock in the multiple of the company. we haven't even gotten into the software market of all these other things that will drive this company through the next half decade. butanticipation is real, the results so far seem to be proved out. mark lehmann and lisa shalit, thank you both very much for being here. we've been getting the first details of president trump's tax plan -- kevin cirilli is here. you have more details for us. kevin: i just obtained the top line of the house republican version of the tax bill. there will be no changes to to(k)s, credit will expand $1600 -- the state and local tax ed ation will be capp $10,000. that's a compromise from many republicans who had opposed that. it's enough to ease some of their concerns. we will be monitoring their feedback throughout the morning. it will double the estate tax repeal the estate tax after six years. we will have more details as the morning continues. david: it's early going. it strikes me, what you said and what we know already underscores what president trump was saying. the 401k issue is a middle-class issue. the state and local tax, we will take care of you up to $10,000. even the estate tax issue, we will not taken away right away -- take it away right away. kevin: the national association of realtors have been watching a campaign ad blitz -- urging them to not let up on the deduction issue. they woulde in here streamline higher education benefits to help them afford college. that's another illustration of how they are trying to craft this. something we don't know me how much this will impact the wealthy and whether or not they will receive a tax break or a .ax benefit it will also repeal the alternative minimum tax. the is another issue that republicans have argued will better help middle-class america as well. simpleit's an issue of application and potentially of getting a benefit to wealthier people. we are getting dribs and drabs of the details. out pretty's coming much as we expected in terms of what the features of the plan will be. we don't know how they interact and how everything is paid for. it's the pay fors that will really matter here. whose deductions are eliminated? that will set the stage for the fight. we know what they want to do, it's a question of how they are going to do it. let's stay on this subject. the pay for his critical. someone is getting hurt what are the lobbyists doing today? michael: they are all anxiously awaiting details of the package. buildersors and home were working on the salt tax credit and the idea of doubling the standard deduction because it would drive people away from using the mortgage interest deduction. they've already said they will oppose the bill because it doesn't go far enough to protect them. every other industry will be doing the same thing. who get tax breaks for oil drilling, they will be asking, are my tax breaks protected in that? the tech companies wanted to know about the worldwide minimum tax. they will have to pay taxes on their operations overseas. jon: these are the policy highlights for individuals and families. we don't have the highlights for the corporate world just yet. michael: they will make it a 20% tax rate permanent. you don't want it to sunset after a few years. that means the tax hold will be very big. they have to close that. what do they eliminate? we know they will keep a couple of things in there. what else goes? alix: mortgage interest deduction will be capped up to $500,000. the child credit, $1600. repealing the alternative minimum tax -- we are just getting the preliminary details. what are your thoughts? lisa: what we have said all along is our view is the market is being extraordinarily patient watching the sausage making and not taking anything into prices other than generic directional confidence that something gets done. the devil will be in the details. that will determine sector by sector and company by company who are the winners and the losers ultimately from this -- this tax plan. done byy have to get it august. or the market will tank. from new york, we are 15 minutes into the session. emergingsoccer session -- softer session emerging. the story of the bond market is as follows. yields are lower by a basis point. the fed chair nomination from the president of united states bit later. at 1.31.weakness wonderful percentage point. that's one full percentage point. this is bloomberg. ♪ emma: this is "bloomberg daybreak." coming up, an exclusive interview with lloyd blankfein. this is bloomberg. david: throughout this hour, we been getting details of the tax plan being proposed by house republicans. joining us now, michael mckee, carl riccadonna and mr. rokita kumar. you had a chance to look at the outline. we got this one-page outline. michael: i've been trying to figure this out. these aref things -- the talking points republicans are releasing. 99% of it has to do with individual taxes. nothing really on corporations rate forn the 20% corporations that would be permanent. -- youre a lot of things don't know what it's going to mean until you see how it all interacts. they talk about the idea of preserving charitable contributions, but they will also double the standard induction, which means fewer people will i do mice -- itemize. does that hurt charities? do charities go to the well to try to stop this? now, they have the right off of state and local property taxes to $10,000. they are not including sales taxes and state income taxes as they do now. how does that affect the republicans from new york and california and other high tax states? will they be able to live with this? what do the realtors do? you had a chance to look at some of these details. is this really a political document? this would appeal to the middle class and therefore to voters. that's a powerful reminder while the economics of tax reform might be driven by the changes that are occurring on the business side, the lowering rate, therporate gr accelerated cost recovery, the politics are 100% on the individual site. it's individuals who vote and it's individuals who the elected wer officials are responding to in terms of political pressure. it's not surprising to me that the documents are focused on the benefits to individuals who have ,arious hypothetical families news iu benefit -- here's how you benefit. alix: i also want to point out that we are getting news about corporations. taxe plan caps business at 25%. is there anything that would indicate this is going to boost growth? i don't think we are able to make that supply-sider leap. incentivizing businesses to stay on u.s. soil certainly is beneficial. we have to think seriously about corporate tax reform. two things pop out to me. what may be considered wealthy in oklahoma is middle-class in california or along much of the east coast here. when we talk about what is best for the middle class here, this is thinking about the center of the country, not your average middle-class household in new , which isw jersey paying more for mortgage interest rate reduction. may be a pain to calculate, however, this was designed to prevent the wealthy from getting away with too many text inductions and exemptions. -- tax deductions and exemptions. if this not a tax cut for the wealthy, we don't need to get rid of the amt. 30% of: the wealthy get their income from wages and salaries. most of their income comes from investing. the amt is the way to equal that out. because it was never index, the amt has become more of a tax on middle-class and upper-middle-class families. wealthy taxpayers don't get -- amt.aren't paying they as amt repeal is designed simplicity factor and provide some benefit to many of those on and in new york and california because that's where the liability tends to be concentrated. gets.s gives and everybody calculus for themselves how they will fare. we talk about the corporate rate at 20%. it's not clear to me that at the end of the day that is going to be permanent. it's not yet clear that it will be permanent in the house bill. even if it is, there's important senate budget procedural rules that will require that rate to sunset at some point in the next 20 years. there's still a lot of detail to be fleshed out on that piece of the proposal. michael: just quickly on the pass-throughs -- the key is not the rate, the key is what is a pass-through? who qualifies for this tax break? the small businesses they are aiming at already pay only 25%. how do they decide who is a pass-through corporation and who is a hedge fund taking advantage of this? david: another thing missing from this one-page document, what they do with expensing capital investment. that was a big issue about whether they would be encouraging corporations to invest. another thing, repatriation. >> we expect both of those proposals to be in the bill. on the expensing, the framework document that was released in late september committed to five for the expensing assets that currently get bonus depreciation. in more generous cost recovery system. they would say we expect that around your five -- year five. on repatriation, they've been clear that it will be a proposal come almost a transition rule to get the earnings into the new worldwide system. a lower rate of tax on a liquid -- iliquid. job just jay powell's get harder? just as it looked like health care reform was a done deal, the same thing is true here could. you have a hard time passing this. jon: great to have you with us. president'sor the announcement of the next fed chair. coverage coming up at three clock p.m. new york time. this is bloomberg. ♪ ♪ i'm done. done with figuring it out for myself. i'm done with surprises. i'm done 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[sfx: mnemonic] vonnie: it is 10:00 a.m. in new york and 10:00 p.m. in hong kong. from new york, i'm vonnie quinn . mark: welcome to "bloomberg markets." vonnie: we are getting more details on the house gop tax bill. we will be taking a deeper look into those details before the big reveal later today. president donald trump set to pick jerome powell for fed chair. what this means for the future of fed policy. the bank of england raises interest rates for the first time in a decade. morenor mark carney's dovish outlook pushing the pound down versus the dollar. a big couple of hours to come. first, we are 30 minutes into the new york trading session.

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