Yellen testimony, this time to Banking Committee. At 11 00, the u. S. Congressional Budget Office will announce the fiscal year 2018 urgent in washington. President trump will hold a joint News Conference with president macron in paris. Jonathan from talk to dove. Hawk to dove. Committeden we are to obtaining our 2 objective and are aware for a number of years we have been running under that and recognize there are dangers that would be associated with persistent undershoots of our inflation objective. It is 2 is not a ceiling, it is a metric objective. The msci old country index and douse it at record highs. The stoxx 600 following the best day in 11 weeks. The bloomberg dollar index falling to the lowest in 10 months and bond yields a grind flour. Joining us in new york is Jeff Rosenberg the chief income. Trategist at blackrock what did we learn yesterday from chair yellen that we didnt know the day before . That the market was expecting her to shift her tone. The bond markets particularly. We didnt get that. What we are describing as a more is not. Ellen she said the same things she has been saying since march. The difference is post the center speech and the Global Market which excited want americans to the possibility of more aggressive global think actions bond yields have been on the rise of there was a fear there might have been a shift in town. It was not a change and what yellen had to say, it was relative to Market Expectations and disappointing those expectations in the sense of delivering the same message resulted in a decent bond market rally and the equity market took off. Jonathan is at the same testimony . Was a little noise about the fed starting the Balance Sheet roll down as soon as july. If she was going to do that she would have given an indication. That was probably pushed back to september. The equity Market Reaction i was puzzled by. The scenario in which the fed does not raise rates in december is not great necessarily for the equity markets. It means the fed is unable to generate inflation there are looking for, or are unable to forecast inflation. I am not so sure if we are sitting in december and the fed declines to hike it will mean the equity markets have done well in the interim. David we are not sure about inflation. She confirms what we expected, but said we have doubts about what is going on with inflation. Particularly wage pressure. That is bad for equities and earnings. Toon you dont want to see much wage pressure and overheating, but she is only looking for progress towards 2 . She doesnt say the progress she is looking for, stepping mynot raising rates expectation is if they dont raise in december it isnt like they will be looking to raise soon thereafter. They will take time to see what is going on. Other perspective is a lot of what was going on in the market was a fear of policy error. That the fed would recede in normalizing the Balance Sheet irrespective of the progress on inflation. Thatarkets were worried maybe this tentative and temporary nature to the inflation debate would not have shown up in the fed might have been making a mistake. Backing off of that at the. There were other speeches before for letsing a marker skip december. It eases a little bit of concerns around the policy error, positive for equity. Relative tovish expectations. Did we find people under risk out there . I think the bond market had been moving towards the short side because of the global environment. That is what you had an environment where you could have a big reaction. You had a long market before the centra speech which gave us am aggressive an aggressive move higher in Interest Rates. On that side it was clear where positioning was. Effect of immediate what the fed does and the regime change. We have a new nominee for the vice chair. There is open speculation that janet yellen might not be their past february. Untilll stay at least february. Is the bond market trying to price that and to suggest what would happen if there is a regime change . Brian usually you would have an idea of the direction it would go. With this administration, it is hard to understand what he would be looking for if he did not want to renominate janet yellen . Keep ratesnt to lower . He has commented about liking low Interest Rates. Most of the Republican Party would like to see someone more rulesbased, someone who would normalize Interest Rates more quickly. In directionprice when you dont have a sense of where you will go. There is a chance she is openly renominated. There is a history of this of president s of different parties renominated fed chairs. This may not be an area this might be a hornets nest that the president does not want to kick in october and november. Jonathan when you guys Start Talking about gary , what kind of reserve are you thinking about . Jeff no one is waking up to talk about gary cohen. People have been talking about it for a while. The reason we talked about it yesterday was because a politico. A very explicit article. It is not necessarily news. When we talk about with potential change means, almost any potential centralbank nominee that we talk about, everyone is to the hawkish side of where we perceive yellen today. That is one of the conclusions. It is hard to think about a totralbank replacement yellen who would not be a little sh relativeh hawki to how yellen has been operating. Jonathan the Federal Reserve as an institution, does it shaped the individual . Are we to believe youll get a radical shift if gary cohen sits in Janet Yellens seat . Chairs havest two been policycentric. Policycentricry. The possibility of someone outside that extreme focus, to the nextg it level in terms of modeldriven and academically focused is a big change. More towards a greenspan where there will be more balance to policymaking to Financial Market conditions and economic outsidens from inputs of just the academic perspective. David fascinating. They will both be staying with us. Chair janet yellen begins her second day of testimony and 9 30 eastern time. We will be joined by the former acting administrator of medicare and medicaid and the former cbo director as we look forward to a new Health Care Bill and the scoring of the president s budget coming out later today. Live from new york, this is bloomberg. Jonathan from new york city you are watching bloomberg with a focus on u. K. Politics for the moment. Addressing the house of commons as the United Kingdom unveils the withdrawal bill, the repeal bill. The formal title is the European Union withdrawal bill. It will end jurisdiction in the u. K. And convey existing european statutes into british law when the u. K. Leaves the bloc. The u. K. Will also leave the European Court of justice and nuclear agency. The Scottish Parliament will get a separate vote on the bill through a legislative consent motion. Repeal bill has been unveiled. That is the latest from the United Kingdom. Joining us is Jeff Rosenberg and brian nick. Looking at the situation in the u. K. Fragmented, political mess. Compare that to europe, united and politically stable compared to where some people thought we would be a couple of months ago. Jeff there have been dramatic changes. On brexit there is uncertainty in terms of what exactly the form of brexit will look like given the shifts we have seen in politics in the u. K. Across the channel a 180 degree turn around from what we were. Alking about six months ago the rise of populism, fragmentation in europe, the potential for a downside tail risk. What we got was the opposite. The narrative coming out of europe, look at the strength in. He euro it is about the politics helping the economics. The labor reforms for france and germany in terms of their potential partnership. These are major shifts that are positive for the european outlook. You have seen it in Financial Market performance. Jonathan i was trying to make too much of the european stability . Relative to five months ago, the enthusiasm about president macron in france, do you think things have gone too far in terms of the enthusiasm . That is what happens in narratives. We go from one side of the narrative to the other. There is a significant impact. The significance of the impact can be through very small in elector a margins. The fact is that the new president has a mandate. The mandate creates the potential to meaningfully change policy. We have had this conversation around labor market reforms in france for a long time. The difference this time is there is a lot of momentum behind those changes. To the extent that they change policy, they change some of those outcomes. That is a meaningful development. David these geopolitical changes are backdrop for your investment decisions. Where are they turning . This is a twoyear process. By 2019 we will have a better idea of what the trade relations will be like. What relationships with the u. K. Have with Major Trading partners . I like it when stocks and bonds prices are headed in different directions. In europe we have seen the opposite. Interest rates moving up for a lot of the reasons jeff has been. Alking about, positive reasons economic progress, economic strength, political reform, a stronger European Union which has been a problem for markets in the last five to six years. Equity prices stalling or slightly underperform at the end of june. I more encouraged by what im seeing now, europe going ahead and increasing on a stronger earnings outlook and Stronger Political outlook. David the bank of england has a tough time even though they have inflation raising Interest Rates given the state of their economy. Crosswinds have the that the European Central bank doesnt. They probably have an economy doing well enough to normalize Monetary Policy, but this tremendous Political Uncertainty which translates into economic uncertainty. Discretion is the better part. The ecb is moving towards less easing. You saw the bank of canada raise Interest Rates. The bank of canada might be repeatedlys appointment if we are looking at a major move up. They might air on the side of discretion. Jonathan president draghi said to address the jackson hole conference. At thesenberg, looking story in the United Kingdom, a bank of england that might be reluctant to hike. Likesou think about the of canada, a very nordic country with a very similar problem. There i say second tier. Second tier. Is it a case study . A role between economic objectives, stability, inflation, economic growth, and the third mandate which is not embedded in the feds mandate but is part of achieving the other 2 financial stability. The longer you keep these highly accommodative policies to generate goods and Services Inflation reports that we will see later this week, would you generate is acid inflation. Too much, to accommodative for too long, creates the risk of destabilizing market conditions. That is the story of the financial crisis. That is part of what we heard from draghi two weeks ago which was market moving. By not doing anything at all we are becoming more accommodative. The means through which that occurs is economic conditions. There is a narrative that some of us need to get on with it. You didnt hear that from yellen. Were back to the paranormal markets bonds and stock go up because it is easy policy forever, but constraint still lingers out there. Jonathan coming up, the chairman of will it advisers talking about the Investment Climate as he sees it. And President Trumps visit to paris as he meets with president macron ahead of bastille day. You are watching bloomberg tv. Jonathan 30 minutes dedicated to fixed income. What asset rates you youthan from new york city are watching bloomberg tv, i am jonathan ferro. I took three days off and refused to look at market close and follow the Political Drama then to end in yesterday. All time high despite Political Drama. If you have been following the north korea situation, record high politics, no one seems to care. Yields lower by single basis point. 231 on the u. S. 10 year. Yesterday, 113. 19 on the screen. Geopolitics continue. President trump in paris by the invitation of president macron dayattend bastille festivities. We go to our correspondent traveling with the president. The question is why . At the g20. Acron why did they have to get together again . He waspresident says invited and decided to accept. He is here to celebrate the 100th anniversary of the u. S. Partnering with the french and military battles of world war i, something that has continued throughout the last few decades with the u. S. And french fighting sidebyside in a number of different war zones. Even in syria and iraq. Wants to talk to the french president about how to continue that. Understand, these festivities have a fairly military fame. Is part of the message that president macron is trying to send is we are stronger than you think militarily. We will be there with nato and get our spending up the way you have been asking us to do. We know that President Trump likes a good military parade. The french will be able to display some of their military assets and show they have been partnering with the World Community in combating terrorism and fighting on different war fronts. That is something they can find an common when you remember different challenges in the relationship on Climate Change and trade. Reporting from paris, great to have you with us. Stay with us, Jeff Rosenberg and brian nick. A situation in europe. Did the president leave behind the drama in d. C. Or enjoy a trip to paris, or does it follow him . Brian he seems to tweet less when he is a broad. The market has done a good job discounting the political turmoil. Some ofs every day, which impact the president s agenda, some that dont as much. Ive been struck by the substantial economic reform. As wems to be dimming move through the year. Certainly dimmer than on election day or inauguration day. We havent seen a major correction and equity valuations, still high valuation on the s p. For now, this is it bleeding into markets. An obsession with the objects, and obsession with handshakes, with leaders gathering around tables at g20. Do we care if he gets on with Emmanuel Macron or not . Jeff it is pretty secondary to the nearterm focus. What brian mentioned, the market is priced out for a long time. Any fiscal policy shifts. What we are shifting towards, the story under the radar, is the regulatory side. Regulatory reform pieces has been a big support to certain sectors. This is potentially a more negative development to the regulatory piece of it. That is a bit of where markets are more focused. The big things are where we are clearly seeing the debate around health care, much harder to get done, much less likely to get done in Market Participants eyes. David we have the epa director saying we are doing away with regulations. The court said, not so fast. In the meantime the ecb is coming up with more regulations on the banks. It is even harder to get the deregulation done . Jeff this is still the bright spot in fiscal policy for what can get done. A lot can get done and has gotten done. And has gotten done. Jonathan you are watching bloomberg tv. 16 of the 19 groups still in positive territory. 11395. Odollar the back dxy. Treasuries do remain by about eight basis points. Chandra. Mma President Donald Trump is in paris and the first lady. The two leaders look to set aside differences on trade and find other common ground. Bloomberg for the president s News Conference. That would free up 230 billion. Secretary says he is happy to have a transition. If it ensures brexit. If we have to wait a few months as the price for keeping stability, then i would be happy to do that. We are promising new Health Care Bill today. Us on was coming up, our chief washington correspondent. Talk about the budget and health care. Think we are anticipating a nonpartisan Budget Office. After delaying the august recess to the third week. What we are hearing is there has been an increase in Opioid Addiction Fund and funding. Whether or not you can get folks on boardtor rand paul and it still looks like a tough sell. A trimmed down version of insurance. Will that be in the bill or not . We do not know. Someone who has taken a backseat to policy negotiations, as now has seen a resurgence a negotiator for the far right wing of the senate. The majority are not able to get him on board, what is really Marco Rubiois lambasted the congressional Budget Office saying there math doesnt add up. Attacking this nonpartisan referee. We will talk to you later on in the program. Now by the mend responsible for viewing those assumptions. He is the former director of the congressional Budget Office. Thank you for being here. Good morning. Ledger old hat on. What things would you be taking a hard look at . Is the budget was very date on some crucial aspects like tax reform sociocant really do the full analysis it would like to do. The second issue is the basic double counting in the budget wasosal which tax reform todicted to increase growth pay for itself. Those are some of the tsx will see later today. Presidio gets a budget and says were going to have to get tax reform, do they taken to cap be different tools of getting things through . Not dio does cbo is providing an independent read of the president s policies, not trying to predict what the congress will do. As you said, absurdly unrealistic, especially about growth from what i understand. Reform, they get tax what is a more realistic number . Nextonomic growth over the five or 10 years is likely to average about 2 and that is well below the rates we are used to. Differences baby boomers moving out of the democraticnd those show itraphic factors will grow 1 more slowly than it has in the past. We can make some differences budgetgrocery but this does not have the right kind of policies. That is not a collection of growth policies, those are antigrowth. Plus, the deficit will pay for itself and that will provide a further drag on economic growth. In the projection as i understand it, they were going 18. 4 . 5 to when was the last time we had the deficit had an 18 level . I think you are talking about gdp. Nment spending of the peopleeasing number of collecting Social Security and Social Security and medical medicare for the pretty popular programs. They dont want Social Security benefits cut. It makes it very difficult putting debt on a more sustainable path. Finally, we just heard the republicans are really going after the cbo. Done thatistrations in the past . The studio has often been attached attacked. Is afraid assertion analysis. And it is very damaging and our logical political system that we rely on. It is time for religion it is time for republicans to stand up more for the cbo and its work. Soffitre joined by andy and later in the program, we will talk with steve ladner. This is bloomberg daybreak. Coming up in the next hour, Haley Barbour. Speed. S get you up to a subtle shift in the last hour. Futures now pretty much dead flat. 600 up by about the euroor starts to come back in a bit. Marketsthe story in the. Lets get you up to speed on news elsewhere. New part s a tiffany arrives in october. Looking totarget is get a list. Secondquarter earnings for august 16. Er is taking millionill invest 225 googles with yandex,. Condlargest the vote is expected before resource recess. They have to get together and get it done. What happens if they dont . I dont want to talk about. Im sitting and waiting for the bill to come to my desk. They have been promising it ever since obamacare. Still with this from cambridge, massachusetts. Theres been a lot of backandforth on what to do to change obamacare. One, save some money and the other is fixed some of the exchange problems. Moving towards that goal . Speaking onerally the one hand you want to cover more people and that is something that democrats would have an on the other hand, you want to reduce costs. I think the president talks a producing. It increases the costs is essentially makes everything more expensive. It is not surprised that a lot of Companies Went back on fourth of july. Those things still true. We are seeing prices are enough and Consumer Protections the road. A couple of taxes and reportedly that will help with some of the medicaid issues. When that police move towards a better goal . Take a look at that. The analysis ive seen shows 20 would keep about are they going to help health and then spend some fund on a kind of slush that they plan to use. Fornnamed source fund strong or trump. Senators are pretty unhappy because it looks like their needs are not being on that. I want to bring you in here they want to use that for some of the tax form that will help grow issues. The bill as they have been presented so far have cut back on revenue. Theres not much difference at all in the overall budget deficit. And rolling it back a little bit doesnt change the nature of the bill. No one should be surprised that millions of americans would lose lose health insurance. No fundamental changes in how are system works. They are stating that the federal government should set back. Last quick question. Despite the ministrations efforts not to make payments that the insurers are due, the a report two days ago shows margins have doubled over the last year to about 75 so yes, there are challenges. The demonstration did the right thing, that would show some improvement. Desperatelycountry. Ants to help improve theink that is where country survive. If you have a bloomberg terminal, check out tv. Just go to tv on your terminal. Live from new york, this is bloomberg. Lets get you up to speed on Market Action. Futures going nowhere. Flat as well. P the s p 500 10 points away from that benchmark. Go bond market, yields nowhere. Just yesterday, we tread water in that. A little bit of strength. We have about a 10th of 1 . Today, we will hear from heads of state and they will be joined by two members of President Trumps inner circle. There were too late ads. Reportedly last evening. They will not speak at the conference. We had dinner last night Mark Zuckerberg walking with reed hastings. Im impressed by how many meetings how many in light of all that, they are seen as just another two people participating. What is on the agenda today . Theres a big focus here on jenna laurely and petraeus is here. The president of colombia is expected to be here as well. We talked about a lot of issues including north korea and the ambassador to russia and he said is important for us to how we engage in leadership. He said to do so with eyes wide oakland and smartly. It is one of those kushner in. Red it it i doubt it. Program, up on this Haley Barbour will be joining this program from your as we get you setup from the Market Action this thursday. You are watching bloomberg tv. We started how will becausea Global Equity hit a record high. An embattled President Trump in ticking. The clock is Prime Minister mays unveiled a landmark law that would take britain out of the eu. On jonathan ferro. Up. Ounty down and futures flat after, dead kissing a 2017 high in the last 24 hours. This is an easy one. Something try to get going. We are going to get u. S. Economic data with additional jobless claims for the month of june. At 11 00, the u. S. Congressional Budget Office will release an lysis of the 2018 President Trumps 2018 budget proposal. The politics still looked shaky under the federal act criticize european block. Pretty done good. In this weeks business magazine, he out loans he outlines why. John was us now. Welcome to the table. Great piece. Andhat was thrown around ended of a joke. Trump went against washington and going into the brexit vote, they really bad way. When brexit happen, but a lot of people forecast the beginning of the end. What brexit it was reunited brussels and i have macro coming in and you have this gloomy site. Nothing but pleasure for many people of brussels. Rules favor them. Drawe amount of investors relative stability. It makes it feel happier and one reason why is americans used to laugh when they saw jeanclaude juncker. Not what they have to explain no longer the force of free trade. The british have shot themselves in the foot, but the other huge thing is Emmanuel Macron and why that matter so much is macron offering the perspective and that gives at least in theory the possibility of having reform inside the european zone. Meeting. Joint cabinet this is a new life. The resistance and in the mineral he was the reformers candidate. The following quote is the opportunity, dont squander it. If it doesnt perform its habits, it will be back on the operating table. There was a lot of things britain was saying. She kept on saying you have to integrate the eurozone. No Currency Union has ever worked without some kind of common bond. You go ahead and do that, that makes sense for you. If europe doesnt grab this opportunity he said even the economy is doing well. A stepenly, there is again. Im just dealing with that image. Is there a danger here in because it is john went through all of those things, it is basically brussels looking better. Maybenge in brussels and macro will change something in paris, but otherwise no substantial form. That said, nothing has actually happened. I think theres some history of the eu. React at theonly point of a financial crisis. I do think they hold the upper hand with britain in terms of this negotiation. The economy is certainly doing better. Companies are not reformed in a way that would make them as globally competitive so as an investment opportunity, or still somewhat guarded. What extent is the structure itself . Several things. Muchuch regulation and too red tape. They were seven is the single market. This is what you saw in brexit. Restaurant, you had a very small chance to build. He did not think of and open , but it still needs a lot of integration. If you had a way of making that happen, that is the easiest way to make europe grow. Frances biggest problem be not for russells brussels. At think macron is reasonably well. Macron has said for over year, i think if we can get france to reform, i can get germany to buy into this. The problem is not only do you have to believe in macron, you have to believe in italy. Anything you give to france, that is also European Finance gdp and that is a risk. German . Ne most likely do you believe in italy question mark i have a lot of doubt about it. Macron has certainly changed the mood. Theres no doubt. In the end, it is not really change. I think i agree with john. How you integrate is attractive and saying things is attractive. He has little thing called trade unions. 50 of the french gdp is accounted for them to me what is margareto do thatcher came in and said let me spread harmony and then she spread about as much discord. He has got to do more. Guy onehere and was the france introduced that is what he wants to change. Whether or not they succeed is another matter. Bloomberg editorinchief, thank you very much. Steve ratner is going to be staying with us. Coming up from here in new york, this is bloomberg. Isthe rebalancing of markets becoming less sensitive. Is a says while demand implementation has fallen to its lowest level since it began in january. Uber is taking a backseat in russia. Uber plans to invest over 200 million. A panel of advisors backs it in a unanimous vote. In a clinical trial, 80 of patients went into remission. That is our Bloomberg Business flash. Chair janet yellen signal central bank is not going to rush. Towe are very committed achieving our 2 inflation objective and are well aware for a number of years weve been running under that and recognize there are dangers that would be associated with persistent undershoot of foreign inflation and it is a symmetric. 2 is not a ceiling. The dow said at record high. The bloomberg doubt index fell to its lowest level since september 2016 and still with us is steve ratner. Not ini know youre amount of the market on a daytoday basis. Decisions to lean in and lead out. When you look at the violations, somewhere in the upper decile and that generally does not go well for soup future stock prices. Your expect to continue for the longterm . I put it slightly differently. Perceive, they will look for yield and some of the stocks. It has been these yield oriental stocks and they say the fed will be more dovish. It is really driven by that phenomenon and at the moment it is not appear the rate of interest is required to keep economies moving and keep inflation. To me in awe appear longer environment. Some people might be thinking it is coordinated. I have no reason to think it is coordinated. I think they make their own decisions about their own economy and they are facing the same set of issues. As i said, it is a little bit like a sugar high. It isof what is driving Central Bank Activities and that makes us nervous. I was actually a reporter going back and days when the fed made a decision in the way you found out, that was ridiculous in retrospect. I think transparency is good for everybody. I think it is factbased shes telling you that any point time, here is what i think about it. Concern oversome financial stability. You said there are stretch evaluations. I think in the fixed income market when you see the leverage ratios and cost of debt in the amount of debt being put on these private equity deals, i would not say we are back to where we were, but you are seeing numbers in terms of amounts and ratios that are pretty scary. Where are the opportunities for that . The opportunity depends on your view of the market. Notwithstanding some of the rotation, the stoxx have been underperformers. Thank you. Coming up, janet yellen her second day of testimony. Francepresident of alongside Angela Merkel and several headlines coming out ahead of that News Conference and coming out with a plan. Germany and france agreeing the called. Architecture is riding sod france laterlliance little bit it will be france in the United States. From paris and new york, youre watching bloomberg tv. The Market Action as follows, futures closing in at a record high yesterday. A 23rd new record. Even looking at the action on the s p 500. Bond market,in the yields now higher. A decent bid came in following day one. It day to takes place on d. C. The euro showing a little bit of strength now. Dollar, a weaker story. And other thing, the bill is his proposal they said to repeal taxes on the wealthy. We are back with steve ratner. I think he leaves in place a couple of big taxes which will leave in place 30 billion. Is this moving towards something that is more acceptable to the American People . First i think the question is if it is acceptable to the senate. Getting back to the senate, im not sure it will do much for medicaid. The Susan Collins is of the world will be very hard to get back. They seem to have rejected ted cruz is ideal which was cropped quite quite radical. Is clear theyit did not get anything through after seven years. Done,y dont get anything what happens to obamacare . It is a really interesting policy question for the president. Nothing, they can make these exchanges fail and say i told you so. Alternatively, theres some simple fixes you can make that would get the exchanges to work and the question is politically does trump owned health care . I think he probably does so they do need to try to make it work. Distinction a clear between socialize health care and the republicans were very much against it. Peopleking about the that voted republicans and democrats. Is that distinction as clear now as it was maybe five to 10 years ago. I would ask the question this way. Done iswhat trump has made the Affordable Act popular. Seems to convince the majority of americans that having socialized medicine is a good thing. It does not seem to be based on Public Opinion for massive rollbacks on Government Health care we are providing. Thank you very much. Coming up in the next hour, the chief Market Strategist as we get you set up in tomorrows session. Away. Rkets about one hour up 13 on the dow. Stocks pretty much flat. Youre watching bloomberg. These days families want to be connected 24 7. Thats why at comcast were continuing to make our services more reliable than ever. Like technology that can update itself. An advanced fibernetwork infrustructure. New, more Reliable Equipment for your home. And a new culture built around customer service. It all adds up to our most Reliable Network ever. One that keeps you connected to what matters most. This is bloomberg daybreak. Market action as follows. Futures treading water. 1 . S p up about a 10th of about a basis point. The story in the data dropping right now. 247 there are initial jobless claims have been hanging in there over the last two years. 247,000 initial jobless claims. 01 0. 1 for the month of june. Reviously yearoveryear 20 us from his office in new york, joins us from london. Stories on the u. S. Economy. What is the story for you . I think you hit it spot on. No real problems for the labor market. Whether it is a rebound in the Second Quarter that is not as , or whether it is a bunch of oneoff videos, theres not a suggests onnce that the curve. Their baseline view remains the same but it seems like theres a little more concern about and i think markets are reacting to that. And how you think the fed should execute policy, is that in line with how you think the fed will execute . Yes. And they are committed to getting Balance Sheet runoff and they want to let that runoff as much as they can. So i think they will skip the hike in september and give them more time to assess the underlying activity and it is inll likely they go again december. The policy will come and i think if markets are right than to expect runoff and discount the number of rate hikes penciled in the same time. On the one hand, the job situation is going well. On the other hand, inflation is not going the way she would have expected. That is a problem with the fed. Investors. Sue for should they care it is not picking up the way they expected . It of issue where one of the mandates heading strongly staying low as well, but again, inflation not saying about that but ach is not a limit, central goal of effective these numbers are a little bit lower is a problem for them. What we care about is what weres to the rate market watching very closely on what is going to happen with the yield curve which should start sometime this year. An investor does need to be concerned with overall growth patterns. How do you put a best labor market. What is that due to growth . I think it points to a couple of factors. The fact that the u. S. Is in the later part of the cycle. Luckily for corporate in america, the number is still pretty low. That has not been a threat from the investment perspective, but ,ill but as the fed carries on lets say when half to two and half years time. We are still liking certain parts of the equity market at this point. Take a listen to this. The committee continues to expect the evolution of the economy maximumve and maintain employment and stable prices. Shes talking about the journey. We all understand that. Neutral. Talked about from ther away are we fed actually being done . Asked i think you can make the in the two and half range, arts of the about two and a half. I think most people in the market of south of the number. Think that is what markets are reacting to. If you are worried about admittedly is a very difficult thing to read. Essentially, if you operate the Balance Sheet, that is going to affect the data. Obviously, that will when rates. To actually get on with the Balance Sheet and give up on rates for the time during i think that is the tradeoff. Better achieve normalization if you use both the Balance Sheet and rates. And that had a negative effect on inflation so yes, the Balance Sheet allows you to put pressure further out which can suppress activity without having the currency effect. It is better to use both tools than rely on one. To michaels point, i guess the problem is they may still have reluctance to do that. I think we will have to see that. How that plays out is going to be played out so we will have to see. Is it will start this year. Story ise the u. S. Light enough in the cycle to star unwinding. Thank you for being with us lets get in upstate on what is making headlines. Unveileda may legislation that will help take. Ritain out of the eu the bill will be debated and 2019, thebefore march deadline for brexit. President donald trump in the first lady are in paris meeting with frances president , Emmanuel Macron. The two leaders will set aside differences will set a line that set aside differences in Climate Change and trade. U. S. Secretary of state Rex Tillerson is set to make progress in the mideast. Saudi arabia and the united nara arab emirates last month. His lawyer says andal news, 24 hours a day more than 120 countries. This is the birth. Coming up, discussing politics more specifically. Youre watching bloomberg. This is bloomberg daybreak. John those were the joins us from sun valley idaho. Tiffany he previously spent 16 years. Tiffanys new ceo arrives in october. Delta airlines posted disappointing revenues. Andgauge measures revenues the key measure of the pricing power. Shares of dimer are following falling today. It focuses on cars with two Diesel Engine types. That is your Bloomberg Business flash. Theres been a fair amount on, in washington recently. Theres no one more professional or experienced in politics than our next guest. He joins us now from washington, thank you for joining us. Thank you for having me. Lets talk about this president and this administration. He came to office with an indicia ambitious agenda. That agenda seems to be bogged down. What can this administration do to move that through congress . It is ball down. One of the reasons trump one is a lot of americans knew we needed change and they wanted an agenda about instead of. Edistribution congress thats wanted to make it the first thing. This is the way it is. That is worth noting is it took democrats 14 months to enact obamacare. Trump has been president for less than six months so expectations the fact is the democrats own experience is that and alsory unrealistic a lot of what got past and obamacare has not even gone into effect. Republicans are learning that hand i think they will ultimately get a deal, but i dont know they will get one in the next week or so. You were governor and one of the things that has come up in the effort to repeal, a number of governors including republican governors saying if you do that, that will put a lot of pressure back on my stay and i cant afford that. As a former governor, what would you like to see get done . They are saying i dont want to give up what was given to me. Theres a big difference. Some of these governors like john kasich has been one of the lattice folks in america that we have to balance the budget. He was chairman when we passed the first budget, but today, he says he does not want to get everything. Theres a difference between we cant live with it and we like to keep everything that we want in my opinion. That is a big element of this. They were given a much richer expansion and some of them are time giving that up. If you dont believe we can do anything about restraining entitlements. We are not talking about where we spend less, we are talking about spending going up more slowly. When spending goes up more slowly, these governors can control the rate of growth of medicaid which is what we are talking about. They are doing it today. That is a very big bone of contention. It is one of the big issues. Here isg you have going you have 52 republican senators any halfing it 96 of your vote in order to win. Tall order. Etty you pointed out it took 14 months for democrats to pass obamacare. To 14 months get before we talk about infrastructure tax reform . I dont have any inside information, but it will not surprise me senator mcconnell brings Health Care Reform up next week and if it does not pass the senate or does not have the votes, they set aside so they can move on to not only tax but also the budget and nomination and appropriations. Backloga very vague that senator mcconnell has a backlog. The tax reform i think is the growth r Economic Economic growth. The average has been gdp growth of is up 3. 1 were under obama it was two thirds of that. Think about where our country would be if the economy has grown 50 faster the last two years. Thank you for joining us. Online andwatch us interact with us directly. Live from new york, this is bloomberg. President Trump has arrived in paris. Joint News Conference with Emmanuel Macron. Jpmorgan and strategist, talk to me about the political scene right now. I would say the second option where there is a lot of optimism coming out of europe that andum and even other how boring making the reforms and getting the labor market takes. Talk to me about what is already in the price. The optimism in european equities. Where do you tell them to go . On programst is with you guys, i would actually say the Technical Support is still very much there. Europe and lost a thirdowest point in of those has returned. Cash focusingget which are a bit the expensive or we like eurozone so you have been offering the most Earnings Growth would certainly be the most quarters. Is fascinating. Wille that knows france know the labor laws. They had a conversation with bloomberg earlier. The problem with france has been quite a while. To an american, that is stunning. Next hour,p in the chief Market Strategist will be joining us. Martin will be joining us as well. Coming up in the next 24 hours, we will be speaking to this guy, Robert Kaplan on this program. The Market Action pins about 34 minutes away from the opening bell. Heres the story for you. As we come into the session, an alltime high for the dow. You. S the story for to ofnt you down today. He semiannual testimony whoooo. I enjoy the fresher things in life. Fresh towels. Fresh soaps. And of course, tripadvisors freshest, lowest prices. So if youre anything like me. Youll want to check tripadvisor. We now instantly compare prices from over 200 booking sites. To find you the lowest price. On the hotel you want. Go on, try something fresh. Tripadvisor. The latest reviews. The lowest prices. Jon the fed like the fuse under stocks. The first semiannual testimony. Leaving a divided d. C. Behind, President Trump lands in paris to meet Emmanuel Macron. The best performance sector this year caps off earnings tomorrow. Four of the largest u. S. Lenders report Quarterly Results tomorrow. From new york city, good morning. This is bloomberg daybreak. Away from thetes opening bell and the story is as follows. S p 500 futures climb higher by a mere 1 10 of 1 . Bureau with a slight push at 114. 16. It is a weaker dollar story in the treasury space. Yields of two basis points on a 10year. Ofminutes away from day two chairwoman yellens testimony. Lets get you up to speed on some movers. Abigail welcome back. Some of the free market movers. Target shares are higher by 5. 7 after the company says it sees Current Quarter sales coming in better than the previous forecast, basically boosting the view on improving customer numbers. Bloomberg intelligence says this is clearly a positive in a struggling space, the retail struggling space. Target down before this by 30 year to date. Jennifer says it could help lift both costco and walmart on the session. One stock faring less well, Delta Airlines down 1. 6 after they put up a relatively rare secondquarter earnings miss by two cetns. Cents. Atiew for revenue coming in 4. 5 or less. The view from the street, 5 or as much as 5 . A little bit of weakness. The concern is the airlines will not be a will to have sustained pricing power. The russian Search Company absolutely soaring on the news that uber is getting over its russian ride hailing business to them and a 3. 7 billion deal. This is the second time uber has in fact seated a major market, china being the first last year. Jon thank you very much. Guess with the second most read story on bloomberg is today . Mohamed elerian. David its a great piece. Really revolutionizing london black cabs. Jon he does run europe and just reveals what he learns. You can learn a lot. Maybeair janet yellen, she can learn a lot from in london cabbie. Take a listen. Janet yellen we are committed to achieving our 2 inflation objective and are well aware that for a number of years we have been running under that and recognize there are dangers that would be associated with persistent under shoots of our inflation objective. It is asymmetric inflation objective. 2 is not a ceiling. It is asymmetric it is a symmetric objective. Jon leading the s p 500 and nasdaq with the biggest day of gains in two weeks. The dow closing at its 23rd record high of the year. Today the rest of the world joining the rally. The all country world index at a record as well. The stoxx 600 following its best day in 11 weeks on wednesday. Day two of Janet Yellens testimony. David, what did you learn yesterday . Are you going to learn Something Else today . David i dont think you learn Something Else today. You rarely learn something on the second day, although a question could come along thats a bit of a curveball and maybe she was to reset Market Expectations. She came in with an agenda to tell us this transitory inflation story dominating the feds thinking is maybe a little less transitory. We have three cpi misses in a row. The real question, and we talked about this before is is the fed seeing through its traditional output anak activity, 43 supplyside lens which is more positive . I really in the latter camp. Jon when we say does the fed see, are we talking about fed chair yellen seeing . They could be a big change coming up. David she really has two meetings in september and december to seal her legacy. I think she set this up for the Balance Sheet. That could come earlier. I doubt it after the testimony. That seems to be what we are set for, and then she rides off in the distance and we welcome gary cohn and randy quarrels which will be quite fun for the markets. David you set of two different paradigms. Which one is actually operating in the real world . David z when you have strong bestity and weak prices, generally a signal we have something from the supply side. Only have Something Like strong activity and very high prices or inflation pressure, thats a sign for the demand side. Saw withway what we growth over the last 10 years theg as weak as it was in 1930s, with actual inflation running at 1. 6 on average of the last 10 years, prices inflation was quite high given the amount of growth we had. I look at the post crisis period with negative supply shock been more than negative demand shock. The deregulation story that the Trump Administration brings to the table is about to unwind that. David what is your dashboard telling you . Gdp growth is not that exciting. Retail growth is soft. It was all surveys. People are anticipating things are going to be better for the environment of business. Activity. You see that at almost every survey. When and how that translates exactly into investment changes, clearly that takes time. I remain optimistic those surveys will tell us people are thinking along the lines they want to pick investment up. David it has been eight months now since we look at that. People have been expecting different eight months now. When do we get it . time to invest is not from the that happens in a month or a quarter sometimes. There is a lot of activity in nice to be planned out. That that needs activity that needs to be planned out. We have of activity. I think it is quite impressive how many jobs we have created given the pool available labor. We are still getting a lot of hiring, a lot of people that want to actually hire workers. That is a good sign. Jon in your eyes you have Monetary Policy coming more in mind with the way you see the world. What is that mean for what you are doing with markets . What is it mean for all of that . David z. i have been focused on higher expected real rates of return and capital in the economy, largely coming through deregulation and stimulus. I will not bank on it because it is a hard one. Those higher real rates transmit themselves into the economy. We have seen higher rates since the Trump Presidency began. It will keep, in theory, the dollar reasonably strong. It has weekend a lot versus the kened a lotea versus the euro. Thats more about trump being a unifier of europe. I think he has brought them together as a new demon. Jon are you more likely to watch a yellens conference or a chet cohen News Conference . Combination is really an interesting one. You have deregulation giving you the financial leverage, and then you have back stopping from a wall streeter to make sure if everything goes wrong, you have a put. Jon it is confirmed by nobody. Although you guys did reported yesterday. Jon politico did. Wall street has been talking about it for a long time. David z. it was always gary. It transmitted quite quickly for me because academics were not going to win positions in many of the leadership roles in the Trump Administration as you watch opening progress. David we have a wonderful Television Producer that is the president of the United States. Is a great Television Producer. David z. he does like to put people in the organization that will mix it up a little bit. Jon the election of the fed chair it was based on who is better televised . That might not be about thought. David coming up, janet yellen will begin heard second day of testimony on capitol hill. Be sure to catch it right here on bloomberg tv. Coming up later on this program, the debate over tesla. We will speak with gene munster and Brian Johnson live from new york. This is bloomberg. David this is bloomberg. The annual conference in sun valley, idaho continues. David gura is there with a very special guest. David g. im here with sir martin sorrell. First what you think about facebook and google. How much are you occupied with them . Who might be able to compete with these titans, amazon or somebody else. Google is number one in terms of media destinations. All of our competitors they represent clients and facebook announced case would be the third. It is challenging to become the second. The spending we are seeing by clients on facebook, despite all the challenges about fake news and fraud on the internet and measurability and Consumer Brand safety and political brand safety, it continues to charge ahead. Not just in the United States the worldwide. The alternatives, the third orces, that could be an aol ath. You have him on the program and that is one potential. Snap is another potential. Appave a 16 stake in nexus. There are forces that could come from the traditional industry itself. What is interesting is the newspaper owners in the publication owners. They are meeting and celebrating the one of your 50th anniversary 150th anniversary. Year putting pressure. David can they make inroads . We will see. They are concerned about the content without limited concern return. The fines by the eu, the first on google and there are two other cases coming down from the eu. The pressure on facebook and the tax front. Concern thatrly a the fearsome five, in our brand survey the top five brands in the world, the big tech companies. In terms of market cap they are the five most valuable firms on the planet. I think the sixth is berkshire hathaway. These Companies Really have a dominance. Surrounding all of this is the amazon dominating the cloud space. I you concerned that they are going to get into advertising more . Clear trying to build a strong relationship with them and have had some success. They are a search competitor to google. That clearly will be a battleground. ,5 according to our Research Product searches m a through amazon. With voice controlled devices, and each of the fearsome five has one. If a up will this alexa will discriminate on price, as a en batteries in baby wipes as it does with batteries in baby wipes, that concern increases. We have seen one or two interesting developments on the Package Goods side. Interesting pieces written recently about how potential influential amazon will be. It has one third of the Battery Market in the u. S. With the cheapest batteries, the cheapest baby wipes. It is starting to look for highmargin categories they can invade. The packaged Goods Companies are faced with a couple of pressures. They have activist investors of one and of the spectrum. And the retail having to escape the dominance, the physical dominance, you have the ecommerce dominance of alibaba or amazon. Jd. Com is interesting. It is said it will only merchandise branded goods. It will not see to compete with private labels. That interesting. David let me ask you about cybersecurity. I was wondering if you are going to bring that up. The collateral damage. David what happened . What steps will you take now . What happened was it was a piece of software, Tax Filing Software in the ukraine. We have a number of subsidiaries in the ukraine. It infiltrated into our system. Could we have stopped it . We were advised no. Lots of Major Companies involved with us and our partners in this like ibm and microsoft and many others. Could we have stopped it . No. Also were hit. It has caused a lot of issues for us, but we are sorting our way through it. It affected about have to say 60 of the company. I would say we are two thirds of the way there to having gone are got our arms around the problem. It was unpleasant. Could we have stopped it i think it is very difficult to be 100 certain. It is rather the Consumer Brand safety issue. He cant be wanted to percent certain 100 certain. The area is becoming more sophisticated, the hackers are becoming more sophisticated. There are some simple things you can do which i think we had done. There are other things we will have to do in the future. We will have to invest more. There will be an increased cost of doing business. David think you very much. Jonathan come over to you in new york. Jonathan thank you very much. We will have more from sun valley. The Foreign Relations president will join us at 1 00 p. M. Eastern. Dont miss that conversation coming up. Breathing new life into the struggling Retail Sector. We discuss what is behind todays gains. Stocks up over 4 in the premarket. That story coming up next. About 10. 5 minutes away from the opening bell. You are watching bloomberg. Jon eight or nine minutes away from the opening bell. And expose it of Baby Products during the quarter. The chief Market Strategist joins us with his analysis. The stock up by a must 4 . If that is an outlier to the retail store it over the last year that is been dreadful . I suppose the answer would be yes. There has to be good stories out there besides just amazon and walmart, whether it is costco or target. To me the Retail Sector im not a sector guy, but i look at it from the top down. This has to go to a very significant change. There may be a bit of a black swan event. Where are we going to go with all these malls that have no use . I dont think my kids will go into a mall again i know my grandchildren will not. Maybe one day crazy mall that is very famous, but this kind of small for everybody maybe it was a bloomberg article showing retail capita. We are 10 x for everyone else. Jon use the sector as a prism. Inflation debate. How will it inform the stories told . David z. there has been a longterm technological advance or story which is disinflationary. That has been with us ever since the 1990s. It is been with us for many generations as technology advances. This story i am pushing on the deflation site is one of more of a deregulation story, getting rid of barriers to entry and allowing competition. What we have really missed in the higher regulated environment that came out of 2008 was the ability for Small Businesses to compete. That will change more in financial sector, health care sector, Energy Sector where regulations are very high. Retail the not really have a lot of regulations. David it also did not have a much price discovery, which amazon brought along. Deflationary in a different way. If you look at amazon moving into bricks and mortar with whole foods, walmart making a big bet on online, you look at target it strikes me that i do not read much of their online presence. Is there a feasible way for retailers not to be a blended company . David z. you would think you have to be. You have to wake up and go this direction. But there are a lot of people they dont have smartphones in Rural America and maybe they cant check. If youre in the middle of the sticks, maybe they will last a little longer. I like this longterm deflationary transfer technology. We are adding two more deflationary trend. One is that the fed is tightening up a little bit. That is shifting aggregate demand stimulus back in that is disinflationary. There are a lot of things that will tell us we will not get significant price pressures going forward. It does not mean the economy will not grow. You can grow quite robustly. Just like it did in the 1990s with limited inflation and very high growth, but you have to return to higher productivity and a more competitive out environment. David should this mean more money in the pockets of consumers you dont have to pay as much or the pockets of cfos and ceos with money to invest . David z. yes and yes. David where is it going . David z. they will be a supply creates demand story. There is a sort of law of economics that says if you get that, you will get demand out of it. That will counteract some of the sort of negative demand stories coming from the fed. Jon you talked about maybe getting small productivity gains. How much of a moving target is the mutual rate over the fed . If it is predictable in terms of growth, you assume the neutral rate of the fed, once they get there they are staying there. Economy isf the generating a higher yield rate, they will adjust to a higher rate. What we have had is a low productivity and lower growth outcome. We will talk about it. Jon he knows the clock. That you very much. For minutes away from opening bell and day two of Janet Yellens testimony. So we need tablets installed. With the menu app ready to roll. In 12 weeks. Yeah. The world of fast food is being changed by faster networks. Data, applications, customer experience. Which is why comcast business delivers Consistent Network Performance and speed across all your locations. Fast connections everywhere. Thats how you outmaneuver. So new touch screens. And biometrics. In 574 branches. All done by. Yesterday. Banks arent just undergoing a face lift. Theyre undergoing a transformation. A data fueled, security driven shift in applications and customer experience. Which is why comcast business delivers Consistent Network Performance and speed across all your locations. Hello, mr. Deets. Every Branch Running like headquarters. Thats how you outmaneuver. City,an from new york you are watching bloomberg daybreak. Moments away from the opening bell 24 seconds ago. The 23rd record closing of the year. The record high yesterday. S p 500 futures marginally higher, up by almost 1 10 of 1 throughout the morning. You can hear the opening bell ringing in new york. Yields drive higher by a single basis point on the u. S. 10year. Marginal dollar weakness because the euro kick in with a little strength. The dollar weaker against him was everything, pretty much everything, ahead of day two of the fed chairs semiannual testimony before the u. S. Banking committee in d. C. The Opening Statement expected to be precisely the same Opening Statement from yesterday. We will not talk to you with it. Will bring you the q a on bloomberg. Here is abigail doolittle. Abigail on the opening, moves may be small that we have the dow on pace for another record closing high after yesterdays record. The 23rd of the year. That is pretty positive and on the cusp of another alltime high. Some bullish action despite todays moves. They are relatively small in comparison to yesterdays big fed fuel to rally with the dow and s p 500 having about the best days in two weeks. One sector on the watch you have been talking about, the banking stocks. We have some weakness over the last week. This is a oneweek you a jpmorgan, all these banks will be reporting tomorrow. We had the rally for the sector in the month of june as rates are climbing higher. We have a bit of a pause as investors wait to see where do numbers come in. They have been coming in since may after the big banks lowered, especially around trading revenue. We have a chart that he simplifies what this could mean for the stocks. 7417. It is around morgan stanley. A report next wednesday. In blue these are the trading revenues on a quarterly basis. In yellow the stock. Back in 2015, as trading revenue declined, so did the stock. We saw a revenue climb very high, so did the stock. Bloomberg analyst expect it could draw between 10 t 10 to 15 . Ticket suggest perhaps, we dont that the stocks could come under some pressure. Jonathan david, i want to take a few days off. I just read and i thought about it. In my taking the last two weeks off images for the political news, what is the broadcasting in the United States, i wouldve learned about north korea. And wouldve learned about this russian scandal and how bad things were. I probably would not guess the south korean would be closing at a record high in the dow the same thing. David z. i dont know how long you are off, but weve had a sneaky rise in yields. All of a sudden we are back it 235 and people are more comfortable with this sort of higher rate story and stocks are taking it quite well. And then janet pulled us back a little bit from that but not too much. How to my process . I think we are still in quite a little volatility environment. I dont think she changes anything today. The july meeting is probably a nothing meeting. There is a small chance and i got smaller they would do something as early as july. This scene summer scenes, seems calm and content. Maybe you should catch up on his books. David that chair is just now sitting down and about to give the Opening Statement in washington. We will not bring you the Opening Statements. We will bring you the question and answers as they come from the Senate Finance committee. David, to come back to this question about what is going on volatilityings has been surprisingly low. What is that at this point . Is that bound to change . Z. i had david good fortune to go to washington university. These moments were always a fun time in the market. I wrote a piece this about this moment, the reverse of this moment. He always said volatility comes through complacency. When people are complacent, they leverage up, they do stupid things and it creates volatility. I would argue there is not a lot of complacency today. David it is fascinating. We are about to start earnings season, kicking off of the banks coming up tomorrow. What are you looking at specifically coming out of the banks as you look at how they are doing . We will put up a calendar of exactly which banks are going up on wednesday. the banks of done reasonably well in this move up in rates. That continues slowly. I think the fed is getting some breathing room for them to collect some spreads. And i think the banking business is really the interesting one. Forget the brokerdealer business. That is not great for the broker for dealer brokerdealer side of the business. People want to do deals. This gets back to the deregulation story. People are excited about doing ands, making investments, we are as busy as we have been when i talked to all of our bank is across the different sectors. I can imagine that is true as well at the other banks. I think banking is the key and the deals are not going to slow down. David let me question you about people wanting to deal. Of june it was 1. 9 over the year before. It was 7 higher a year ago. David z. these are new issues. They are not all coming from going to a bank and getting alone. We have seen record corporate debt issuance, highyield issuance. David you will see a bond issuance . You are seeing that . Still on tracke for high issuance numbers and on track for a very highyield numbers. I think the storyline for me is more on the banking side. Where you will have a risk with these guys is on the dealer side. On the dealer side, for the precise reason you brought up, there is not a lot of volatility. Is not forcing people to trade and it spreads the spreads keep coming in as a lack of action. Jonathan im sure someone would be happy with this. My mic broke. It. Nt know who does janet yellen or someone. We go into this. We touched on this little earlier is the idea of neutral rate. What happens once they get there and whether that is a moving target or not or you expect that to revolve in push higher. What you thinking . David z. i think the neutral rates had higher. The storyline, i believed it was secular stagulation. Oh, we have to break. David this is paris with President Trump in the first lady with the first lady. This has the tomb of napoleon. Black, gorgeous tomb. This is part of his tour around paris with president marcron. I knew you wanted to see harris. Paris. David z. they have napoleon right there up in the center of the thing with the big casket. Jonathan it is a great place for holidays been tougher investing and not much else. Did i say that . To you look a europe . David z. fisher. My idea is their coming together in becoming more european because the dont like what going on with america, and that is a positive thing for europe. It gives them a skip in their step to pointed us and say you did something really silly, at least in their view. I am kind of positive, but i think it is a trade and not an investment. I dont think youll European Companies treating capital holders as well as capital holders get treated in the United States. Uro up trade. Er good luck with that mic. In front chair yellen of the Senate Banking committee in washington, d. C. The opening marks every gun. We will bring you the question and answer session. For new york city, nine or 10 minutes from the opening bell, stocks higher by 1 10 of 1 on the dow. You are watching bloomberg. David we are watching President Trump and president macron in paris. On invitedmacr President Trump to come over for day. Deal day bastille we are watching the pop and circumstance in paris right now. We want to bring in gene munster, the ceo of loop ventures and Brian Johnson of barclays. We will talk about tesla. There is a difference of opinion about where tesla is going. Is a going up or down . We have two people that represent the two points of you. Thinks gene munster who this will take off, could be the next amazon. Brian johnson says it is under weighted. Gene, make your case. 3 is not justl about electric. In the next two years it will be fully self driving. There was a question if the legislature will allow that. It is more affordable than you think. Everyone knows the model 3 is more affordable, but based on our analysis that factors and feel and maintenance, we see expensive than a toyota camry. People think it will be around 5 million vehicles. We think of a closer to 15 million. Moment where a consumers realize this and units will take off exponentially. David before we get brian some equal time, you said creep into the market. That might be the right word. Candidate enough of them . That had problems making their goals. Can be overcome the challenges on the manufacturing side . Gene they will overcome them. Story where a lumpy they miss production numbers of people will get concerned. But if that is the case, they are missing their opportunity. This is a major paradigm shift for cars in the next 10 years. Every model they drives gains insight in terms of building autonomy. Gets more and more difficult for them to bridge the gap. And theyve a miss production number because its hard to go from building 50,000 vehicles to 500,000 a year, but eventually they will work out the kinks and fulfill the demand. David Brian Johnson, you are more dubious of this. To you take issues with what gene set that this will be a major change in the industry, or are you more concerned that tesla is a way to get there . Brian really the latter. Electrification will be the big trend, along with autonomy over the next 20 years. Tesla has a bit of a first mover advantage. He has filled a great brand and that combines luxury wit the can with the future. We like everything he is doing on my software basis. It is making the rest of the industry move faster. Where we disagree is around the financials, like the market ever cares about those. And what is it going to cost with the cap x to get there. And once they get there and there are other evs in showrooms. David President Trump with paris at theron in tomb of napoleon. He is reviewing the troops, going down the line and having a good time. You have some other news . Jonathan a special thanks to jane munster and two Brian Johnson. We have to cut it short. We will have you back on one day in the future. Janet yellen is appearing before the u. S. Senate Banking Committee in d. C. Is her semiannual testimony. The q a session which we will have right here on bloomberg tv. I do. Can you please give the committee after the steering i dont want to use of my time on this right now, some additional suggestions to reduce the burdens in these areas. Janet yellen yes, we would be happy to do so. Governor powell said the Federal Reserve is reviewing the volcker rule. He noted there is room for eliminating relaxing aspects of implementation regulation that dont directly bear on the volcker rules main policy goals. Can you elaborate on the fe d review . Chair yellen we look forward to working with other agencies. It is a complex rule reflecting the legislation, but i think we could find ways to reduce the burden and it should be a multiagency effort. Many of us are aware the multiagency effort has been slowed down. Many of us believe it is because of the complexity of dealing with four or five agencies and getting them to agree on the same thing. What do you think about the idea of having a designated lead agency on this issue . Chair yellen i think that is Something Congress could consider if one agency has a larger regulatory role with respect to those institutions. It might be natural for it to take the lead. At the last here and you told me we would like to balance we would like our Balance Sheet to again be primarily treasury securities, whereas we has substantial holdings of mortgagebacked securities. The fomcs plan to reduce the Balance Sheet was initially not reinvesting 6 billion in securities and 4 billion in Agency Securities from a. Per month, suggesting the fed my wind down more quickly than its Mortgage Backed securities portfolio. Is that accurate . Chair yellen ultimately when the caps are fully phased in, my guess is they will not be binding. It will be running down mortgagebacked securities at the rate that principle is received on them. To gol be a long process back to an old treasuries portfolio. Even after we have come to the point for the balance she has as lowed its look a level as we expect to take it. We will have substantial holdings of mortgagebacked securities. Beyond that we will be running down mortgagebacked securities and replacing them with treasuries. It will be a lengthy process but the fomc is committed to primarily treasury and portfolio in the longer run. I appreciate that. I yield back 18 of my seconds. Thank you, mr. Chairman. History teaches us what congress does the things, labor law reform and Social Security with franklin roosevelt, 1965 with medicare, the congress two or three years later goes back and makes modest changes to fix them. Something we have been asking for several years, asking republicans to do the formal care act. They have the Affordable Care act. The same with doddfrank. We have seen a House Financial Services committee that wants wholesale destruction. We will work with bipartisanly by making changes to do what chair yellen has spoken about in making those reforms. I wanted to preface with that. You recently stated you do not expect another financial crisis in our lifetimes, setting aside the delicate question of your and my in all our life expectancies. Is that predicated on maintaining this ring for the current regulatory structure . Chair yellen let me state what i think i should have stated originally when i made that comment. I believe we have done a great deal since the financial crisis to strengthen the Financial System and and make it more resilient. I think we can never be confident there wont be another financial crisis, that we have acted in the aftermath of that crisis to put in place much stronger capital and liquidity requirements for systemic banking organizations and the Banking System more generally i think our stress testing regime is forcing banks to greatly improve their Risk Management and capital planning. It is giving us assurance that even if there is a very significant downturn in the economy they will be able to function and provide the credit needs of the economy. We have greatly increased our monitoring of the Financial System for a broader range of risks. Let me say we can never be confident that there will be another financial crisis. Maintainortant that we the improvements that have been put in place that mitigate the risk and the potential. I just want people listening not to read your answers from the chairman about moving on reform in moving that there is some urgency to that everyone changes. We want them to be modest. Let me further paint that picture with this question in light of your comments to me that you may not expect another financial crisis, but the importance of the regulatory structure diminishes it dramatically. The with the treasury report was written, you did not seem to have a lot of recommendations. Lower Capital Requirements and fewer Consumer Protections. If those were adopted, would you have that same level of confidence that you just repeated and have said earlier . Chair yellen i would not be in favor of reducing capital for the most systemic banks. And Consumer Protections . Chair yellen i think those are important as well. There are a lot of things in the treasury report we agree with and mirrors things we are doing on her own to tailor appropriate legislation. It is critically important to maintain the capital standard. If we were to adopt the treasury report recommendations, it would more likely result in a potential financial crisis . Chair yellen some of them, yes. Return to a topic i discussed several weeks ago with your colleague, governor powell. Last year, the fed proposed adding a capital s surcharge. They are still somewhat below where they should be. Surchargesng the will protect against contagion from one of these banks spreading. Is the fed on track to finishing these changes . Chair yellen we are working hard on those. We are awaiting further work by our staff. We hope to include those surcharges and make adjustments and to better integrate the Capital Requirements. Can you give us with assurance this is an easy 1 can you assure us those changes will be in place for next years stress chest. Chair yellen it depends on the timing. We need to go out with a proposal. I cant guarantee it will be in place that quickly. That you dont see the fed heading and direction of the treasury for a recommendation and that . Recommendation instead . Chair yellen the treasury is supportive of integrating a capital buffer relating to the stress test and to our regular riskbased Capital Requirements. But probably it is not supportive of including the surcharges. More than probably. Thank you. Senator shelby . A welcome again chairman yellen. Whichlation calculations, is important to all Central Banks and us, current fed calculations shows inflation is fallen to 1. 4 i believe. This statistic is puzzling to some economists as Interest Rates were recently raised in june. Some have suggested you are aware of this, that the fed should not continue the process of gradually raising Interest Rates because inflation has not kept pace with some of the things you talked about earlier. You said in recent testimony, and i will quote, it appears the recent lower meetings on inflation are probably the result of a few unusual productions in certain categories of prices. Unusualion to these productions, is a possible certain aspects of foreign economies, such as slow growth and prices in china, are artificially influencing inflation of this country. What is going on here . Do you know . If you know, what you believe . Chair yellen with respect to the Global Economy, we have been through a period in which there is a substantial appreciation of the dollar. That has pressed for quite some time import prices. That trend has to an end and the import prices are rising at a modest rate. I dont see the Global Economy has, at this point, mainly responsible for lower inflation readings. As i indicated in the quote you mentioned, i think that is special onetime transitory factors, these unusual changes reflecting the move to unlimited and large decline in Prescription Drug prices. There may be more going on and we are watching inflation very carefully in light of low readings. I think it is premature to conclude the underlying inflation trend. I have not reached such a conclusion. We are watching data very carefully and i would say with regard to risk as being two d withd with two side respect to inflation. We have quite a tight labor market and it continues to strengthen and experience suggests ultimately, although with a lag, we are not seeing substantial upward pressure on wages. We may begin to see pressures on. Ages and prices i see it as being twosided. With respect to how that bears on policy, most of my colleagues and i, when we look at this and recognizing weve had several months of low inflation readings and we are focused on trying to understand it, have felt it probably remains prudent to continue on a gradual path of rate increases. It is something we will watch very carefully and i want to emphasize that Monetary Policy is not something that is set in stone. If our valuation changes with respect to inflation that will make a difference. Has been in an expansionist mood for quite some time. A lot of economists say this is a mature economy. Would you agree with that . Weve had a long expansion and the Unemployment Rate is now at really quite low levels in a historic sense. I do not believe
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