Speak and in the last halfhour tom keene interviewed Federal Reserve vice chair Stanley Fischer who weighed in on employment. We will be aiming and very likely close to 2 inflation and full employment, which somewhere around where we are now, possibly a bit lower. Jonathan joining us now is sebastien galy, Deutsche Bank director of ethnic strategy and from our european headquarters, speak,ek full of fed what have you learned so far that he did not know last week . I think what we have learned is the fed is really optimistic. The data has been ok, it is not than on fire and they recognize that. You have not preannounced something for march and they were not go into a march meeting and the market since then has repriced something between 223 hikes. Hikes. Two 23 the market is pricing some uncertainty between now and the end of the year something might happen. If there is a risk aversion event of the risk is to the downside to the market is priced almost perfectly. From our perspective at least, for now the fed is in the backseat. Meeting is live but the market has a very different perspective on every meeting being life. Is march a live meeting . Sebastian it really is a residual risk. I think june is what people are looking at and it is almost fully priced, which makes sense. Some extentre to declining and they are behind the curve, and they are not getting penalized for it. It is moving higher with higher inflation but is not really indicating the fed is deeply behind the curve, so the fed basically has to do very little and it can wait until june. By then it will know about fiscal stimulus coming out of the u. S. Administration. In terms of tax changes, unfortunately these might be delayed. Difficulties dealing with congress, it might actually delay some fed typing. David there was a day when the fed chair when up the hill and said we are on the path to hiking. When we got the inflation data, you would see the Dollar Strengthen. What has happened . Themos a few things. First off, you seen some moderate Dollar Strength on the back of slightly higher yields, but the quality of the inflation surprises have not been tremendously deep are strong or brought. The data is accelerating but not on fire. Amid all this, the dollar is pricing quite significant strength and divergence in policy. At the same time you have data outside of the u. S. Which is reasonably strong, whether you look at european data, whether you are looking at chinese data, global data has been quite strong. Some of that divergence has been priced out. I would say that the curve already, at least in terms of the back end is priced firmly. Even if the front and increases we do not expect a huge amount of upset on the back end. David to what extent has there been a shift . Extent are developments, global and economic developments constraining the dollar at this point . Themos i would not say constraining, but if you want to have a dollar that ever accelerates from here you have to have a divergent paths. Whenever you have a very divergent path the dollar becomes a counterproductive force for the u. S. Economy, so ideally you want to have reflation or when you want to have higher rates in the u. S. Or elsewhere, it is an environment where basically the rest of the world a strong, the dollar is not that strong, and the fed has more room to tighten policy. Jonathan the elephant in the room is how the Federal Reserve will react or not react to a fiscal package later this year. Chair yellen weighed in on that. Take a listen. We do not know what fiscal plans will congress and the administration will decide on. We are not basing our judgments about current Interest Rates on speculation about that. The economy has been making solid progress toward achieving our objectives. Jonathan so no real clarity from chair yellen, no clarity from vice chair Stanley Fischer in our interview with him. As far as you are concerned, the Federal Reserve and how it reacts to any potential stimulus package or action out of d. C. , we could see a shortterm demand boost in a longerterm supply action and i wonder how much of a dilemma that could be for the fed. Themos it is a huge dilemma for many different reasons. That is very important, chair yellen has emphasized productivity. But activity growth is what determines what we call the equilibrium real rate, or for all intents and purposes, the level of Interest Rates that the fed basically reaches at the end of the cycle, or neutralizes rates at. This is very important for the longterm yield curve, the 10 year rates. Measureet a package that brings productivity higher, and neutral rates higher, innings the fed will have to raise rates a lot higher and there will be more space for yields to go higher. If you do not and you create a measure that basically subtracts from that, uncertainty rises. On top of that we have the cyclical issues which you mentioned, and even those are not particularly clear. There are some components that could create price shifts and components for risky assets, that are counterproductive for all intents and purposes for the fed measures. I am not saying this is what will happen but given the fed does not know the blueprint, they will need to wait and see what the combination means in terms of cyclical forces, prices, the dollar, in terms of longterm productivity growth and so on and so forth. David productivity growth is a key element. Tom keene asked Stanley Fischer why productivity growth has slowed so much and i took away the answer to be, we do not know. Are they sitting on the sidelines saying we do not know . Sebastien i think the market is in the camp of i do not know. Productivity has slowed down in the u. S. As well as many other companies countries. Several sectors come under pressure but broadly speaking, productivity has been slowing down as we move toward services, and services are the less per bone productive component of the economy. There are factors and developments we do not understand that they suggest in over the longterm terms of Interest Rates it determines to some extent the level that the fed will have to reach. It is relatively low. Not have to tighten extremely fast if they do not need it, and wage growth in the United States has been relatively paltry, a function of low productivity. Jonathan march, yes or no . Themos no. Jonathan sebastian question Mark Sebastian . Sebastien no. Jonathan coming up later on fedmberg markets, more speak as Dennis Lockhart joins bloomberg at 10 30 eastern time. Do not miss that conversation. Duke energy out with earnings moments ago. Fo cfo,ung, the sea joins us next. Emma time now for other stories making headlines, i am emma chandra. Wants to of snapchat raise 3. 2 billion in its ipo. Snap is offering 200 million. Hares for 14 to 16 each at the high end of the range snap would have a market value of about 18. 5 billion and would be the first u. S. Social Media Company to go public since twitter three years ago. The boeing plant in South Carolina has delivered a blow to workers in deciding not to join a union. It comes two days before the factory rolls out the largest of the bullying 787. The world boeing 787. Nestle expects sales to rise 2 to 4 , which is below its longterm target. It has been hurt by deflation across europe makes it hard to raise prices. That is your Bloomberg Business flash. Jonathan lets turn to an earnings story. Duke energy reported fourthquarter earnings largely in line with estimates. It is the largest regulated you just equity utility in the United States. Joining us is the cfo, steve young. Your tenure at the company goes all the way back to 1980. You have literally send it all. As you look down at d. C. , is this anything new to you . Is it radically different . Steve this is the first time in d. C. That we have looked at tax reform since 1986, so that aspect of things is very different. We are actively involved on the issues that are relevant to us, but it is always exciting when administrations change. Jonathan with tax reform and mind, i am wondering how specifically it would impact your business. You have invested a lot in solar over the past few years due to tax incentives at the state and federal level. Do you expect the Business Strategy to change . Steve regarding incentives for renewables, im not hearing a lot about changes to the current tracking of those tax incentives. They are set to expire over the next several years as tax incentives are typically designed to do, and i have not heard a lot about changing that. The issues in tax reform that affect us are involved, the deductibility of interest expanse and that is important to capital for businesses like our own. That is an issue we are looking at closely. Jonathan do you expect it to be easier to build power plants and headlines quest pipelines . Steve you certainly think about infrastructure as critical to our business and an interest an emphasis on it infrastructure bill would be favorable in our view. Hopefully some of the regulatory processes will be expedited. We will continue to work with stakeholders on all assets we build. David you are in a particularly heavily regulated environment. Are you a fan of regulation or a foe . Steve we work with regulation for decades, my entire career. I started out and we were Building Nuclear plants under regulation and now we are building wind and solar farms. We have dealt with regulation very well throughout our state and at the federal level. We think that is a core competency for us. We work very well with commissioners and customers to get the right mix of infrastructure and assets to develop our business favorably. David a lot of your regulations are state and local but at the , are thereel regulations you are urging the administration to look at and change . Steve certainly, we are interested in the ability to get projects approved at the federal level. , are there regulationswe have investments c coast pipeline, a very important pipeline coming through the carolinas and virginia area. We have ownership interest in the Constitution Pipeline moving through new york state. We think these projects make some much sense for bringing lowcost energy to customers. We would like to see those regulatory processes expedited and moved favorably. That is a critical area for us. Jonathan you have trimmed for an assets and boosted your domestic position. Your m a strategy seems to me, it has been around zero electricity utility growth in the United States and to get that growth you have got to buy it. I am wondering whether that changes in the next four to eight years. We are very pleased, in 2016 we divested of our international business, moved out of a merchant generation business in 2015. We developed a gas portfolio business with the acquisition of piedmont natural gas. That has been our strategy, a portfolio transition. We have got a lot of organic growth in these existing businesses that we have, a tremendous amount of investment coming in the grid, and in the deonization carbonization. Jonathan is the buying spree over . Steve i think as we said, we have the businesses we want and we are going to develop them organically. We will keep our eye on the markets for assets as we have done in the past. We will be opportunistic and frugal with our cost of capital, but great opportunities out there as we rebuild the grid of the United States and de carbonized. President trump and his administration are planning to tackle tax reform. What can we expect . We will speak with mitch daniels. This is bloomberg. David this is bloomberg, i am david westin. As business waits for the trump to move forward on their agenda, much of washington watches elsewhere, including the turmoil in the new administration. Joining us is Kevin Cirilli, welcome to the program. It is hard to know where to start. We have withdrawn a labor secretary nominee and replaced the National Security administrator. Kevin i think they are trying to reset the narrative. President trump will head to florida for his first president ial rally since the inauguration so clearly he is trying to rally his support, rally the base, and turn the page. There is no question that with flynn out and questions on capitol hill, this has been quite a difficult, rocky start for this new administration. David we started out thinking this is going to be great for the president because he has republicans in both houses on the hill. What is the hill saying to the white house . Kevin they need to get back control of the narrative. President trump will meet with key leaders of congress to try to craft out a legislative policy agenda. Hearings began this week on how to repeal or replace parts of the Affordable Care act. I am hearing next week the border adjustment tax issue will continue to flare up. Republicans are divided on that as well as a key part of tax reform. And deregulatory policies on doddfrank, republicans are trying to carve out enough ways to get democrats on board so they can move forward with that in the senate. Executive actions expected tomorrow on the import export bank. A lot of moving parts, and that noise surrounding, really concerning it could impact his legislative agenda. David staying on President Trump and his affects of border getadjustment, we want to your perspective. We were talking of whether the markets were just a little indecisive because they do not know what to make out of washington. Is what we see in washington playing out . Professional investors have been quite nervous in january but the market is led by Retail Investors. People that are quite confident about the u. S. Administration as a whole that has been pushing equity markets higher. Professional investors are a little bit more wiry about the speed to wary about the speed to execute. I think there are some significant concerns but it is not being reflected in prices. Prices tell us everything is absolutely fine. David do you agree with that, and if he is right, how fickle are those Retail Investors . Themos i would slightly disagree. Since the u. S. Election you have seen a huge spike in longterm Interest Rates. You have seen a big rally and the dollar and a significant rally in the s p. Of course, this does not concern the last few weeks or months, dare i say, but generally speaking the market has moved into a different attitude since the u. S. Election, expecting policy will create a cyclical, at least cyclical if not longterm boost to growth and inflation, a stronger dollar, and a profitable environment for equities. In the mind of investors there are three separate issues. Fiscal policy on growth, shortterm and longterm. The impact of border adjustment and other kinds of such measures on the dollar, and last but not least, taxation on the level of the s p and winners and losers among stocks depending on market capitalization and sector. Jonathan i keep hearing it, uncertainty, risk. Er and flynn. Dz why should wall street care about those kind of things happening . Why should investors Pay Attention . Sebastien largely i think they do not but the promise seems to be able to execute and coordinate with congress. Congress will deliver the better weibo. Bill. Ter way if they cannot act together with means theret, it might be delays on what they can actually deliver, and the package might not be as reflective as what the president wants. It might end up seeing what we want. Jonathan if you are trading on headlines, as far as d. C. Is concerned what is the headline that wall street would say, that matters to me . Sebastien we are trying not themos we are trying not to trade headlines as i think that has been a losing proposition for a number of investors. I think if you drill deep down into the fundamentals of the current market pricing, for this to extend come up for risk to continue you need to see a very big fiscal package. You want to see the size of the package and the composition. Second, you need to figure out to what extent, which countries and sectors will be affected, if any, by border taxes. Thed, obviously what is different tax treatment of Different Companies so they can figure out things like how high yield credit rates and Investment Grade rates. Jonathan that wraps up the segment. Coming up, more centralbank watches. Is more tapering ahead . The ecb publishes its account of the january policy meeting. This is bloomberg. [ alarm clock beeping ] weather. [ laughter ] cartoons. Wait for it. [ cat screech ] [ laughter ] [ screaming ] [ laughter ] make everyday awesome with the power of xfinity x1. Hi grandma and the fastest internet. [ girl screaming ] [ laughter ] jonathan from new york city for our viewers worldwide, this is bloomberg. I am Jonathan Ferro. This is how things are set up. Negative,e marginally down about 1 10 or 2 10 of 1 on the s p 500 and the dow. Seven Straight Days of gains on the s p. Five record closes as well. For the equity market, here is your situation cross asset. 4 10 of 1 up against the dollar as the ecbs latest accounts of its Monetary Policy meeting dropped across the bloomberg. The ecb has just published its account of the january 18 and 19th policy meeting. They say second round wage effects may materialize slowly and the underlying inflation lacks convincing upward trend. The ecb widely agreed to maintain very substantial stimulus. According to ecb accounts, scathing back stimulus could jeopardize recession progress. Sebastien galy of Deutsche Bank still with us, and in london, themos fiotakis. This just coming out, this stimulus that back could jeopardize recession progress. From our perspective i think the ecb has to figure out a few things and it is not a