course. the fed's ability to predict where rates will go is limited, because she says disturbances continues to buffer the economy. yellen adds the federal funds in the longer3% run. that is higher than most people would put it. much of the rest of the speeches on the fed policy actions and how they have -- actions and recovery. yellen goes on to say that at this point we need those tools going forward, although she says the fed is not at this moment studying the idea of targeting higher inflation or nominal gdp. she goes on to talk about the need for some fiscal policy going forward, but doesn't make a big deal of it. yellen says in the future, the economy should grow. interestingly, the fed chair also makes a defense of the ability to respond to the next recession, even with low interest rates. she says in the past interest rates has started with the fed higher than it should be. interest rates so low, that is not going to be a problem. vonnie: we have seen the two-year interest rates rise. the curve has flattened a little bit. i want to bring and keene, host -- bring in survey tom keene, host of bloomberg survey. yellen is seeing inflation rising over the next few years, so not as immediately as we might have thought. that is not rapid enough to improve the labor markets, but not necessarily to get to that 2% inflation hike. tom: it is like the fed minutes, they are killing themselves here to not stay in anything that will be market moving. there is a two-year yield up to ..81% i can look, let me throw this right here. this is great. this is bloomberg on a cell phone. this is great, i'm coming from radio. i don't have a terminal, i have this. alix: it is your -- vonnie: it is your dashboard. the five year was up about five basis points. mckee, the fact that the number run neutral rate is 3%, is that a surprise? michael: it is not a surprise because that is what the fed has said in its summary of economic projections it is. and i have talked to some fed officials who say don't worry, it is going to come down. it is still higher than wall street thinks. it would be implied that the fed would have to raise rates farther and faster than people on the street expect. that is a story a little later in the year or 2017. as the economy develops they have to get that next move in before they start talking about where they stop. mark: i want to talk about what is happening to european assets in the wake of yellen's statement. this is the 10 year yield, trading lower. point,up about a basis since the statement was released. the pound was trading positive. we are down about 1/10 of 1%. u.k. 10 year yield. we are up about one half of 1%. the stocks are rising. what stood out to me is yellen is talking about a better -- talking about a broader range of asset buys. here i am, the bank of england pulling out all the stops. what sort of asset buys? tom: i don't think we are talking about european ranger. the key is experts on what the bond will do. we are beginning to see some movement, and even with weaker yen, that gets my attention as we recalibrate. make too big of a statement on a few basis points move, but it is interesting to see foreign exchange depth and adjust. michael: you have a situation where you are depending on economic data to come in for september. the rate increase in september is probably going to wait on that. yellen has left the door open vice just in the case has strengthened for an interest in recentease months. to adjust starting and that will move more rapidly as we get more data. thatk from today we get jobs report from august and if it is strongly you will probably see people move much more the direction of a rate move. he just upgraded the third quarter from morgan stanley from 2.3 to 2.8%. vonnie: that is a big difference. our ability to raise the fed rate has passed -- the fed rate past is limited. when she says our ability to predict the fed rate past, it she moving towards bullish? michael: not really. will give you we this view of where the terminal fed funds rate is, we can't guarantee that is going to happen because that is over the longer run, two or three years. a lot has happened to the economy that has changed our forecast. she is not saying she is going to make a forecast, but she is saying we can't have a lot of confidence in the forecast. mark: we had a great story yesterday, and i was titled "masters of the universe." phil was discussion the fed lost a lot of credibility because it is trying to tell markets not to be but actions speak louder than words. are we moving towards a position where actions will speak louder than words? michael: that depends on what the action is. is it defies basis point raise, i don't think that will cure the problem. the problem is deeper than that. the fed is subject to the same uncertainties that wall street is. the fed comes out and says we think we're going to move, and it doesn't. they don't have any real better information on what the economy is going to do than people on trading. that uncertainty gets transmitted through their comments, the idea that 17 different people have 17 different views. there is only alan greenspan to worry about. vonnie: stocks continue to hold onto their gains. bonds are seeing some movement in yields. the 10 year, 1.57. is she has also said future policy makers may look at the possibility of expanding future assets. it could be next year. tom: she doesn't have to do it now, we are not anywhere near recession. we did the charts this morning. the four year moving average is ofn 58% from the morning america 1999. bond market,at the and as we quoted these the spread, wes, are really beginning to break down near the june curve flattening that was a recent low. if we gete profound further curve flattening. data is more important than this yellen speech. vonnie: should we read any more into this? could she be saying this is her turn? michael: i would consider that a throwaway line. the fed could look at other things to buy, because they really can't. what legal authority on they could buy is extremely limited and they cannot by any anyties -- cannot buy equities. that is more theoretical comment from her point of view. maybe instead of at the short end, the fed buys 10 year treasuries. any kind ofally suggestion that the fed wants to move into uncharted territory. mark: thank you for joining us. -- tomne taking it out keene breaking it down. you can follow us live for more analysis. i love this function, i have been absolutely glued to it. we are getting ongoing commentary to yellen's speech, which is taking place in jackson hole, wyoming. henry peabody, portfolio manager $23.6e he oversees about billion. he joins us from boston. early take of what yellen has to say? henry: i think the key take away is the theme of the speech, which is the monetary policy toolkit. the fed is in a position where nice to be creative. any's to generate inflation and keep the dollar under control. yellen said specifically they would not think about an increased target but the fed has been studying this for a while, whether yellen has or other parties has. thinking about a 2% target in an inflation fighting regime doesn't necessarily fit today's environment. pushed is looking to rates, help pensioners. beh this we think we need to focused on being away with rate risks. there are ways to get around this market. mark: looking at the reaction, the two-year yield is now unchanged at 78 basis points. yield fractionally lower. 2.24%. atyou know we haven't been the sort of level since 2008. is the yield curve flattening? is very possible. with the degree of negative yielding out the curve, it is possible you could see further flattening. -- u.s. is the high-yield or high yielder. this is something participants haven't acknowledged for a long time. whether the fed goes in september or december is largely irrelevant to us. we take a very long-term view with the multi sector fund. there would be pressure on the curve wouldd that flatten out. it is important this would not signal recession as it has in the past. this is a technically driven market. the question is who is the buyer on the long end? is this a long term holder of a negative yielding bond? or is this more of a momentum player or a renter of the market yet to which could lead to potential snack backs -- potential snack backs. right now it is dangerous to hold a rate risk in our mind. snap backs.l snack right now it is dangerous to hold a rate risk in our mind. vonnie: 75% of the bond universes in negative territory. henry: the difference is to focus on total versus relative return. thinking about a 3% to 6% yield, doesn't eight years smack to us of a very risk -- of a very good risk return. loanse been favoring bank at the margin, which offer similar yields to the high-yield market, but with zero duration. we are seeing that rise and libor now -- rise in libor now. the key is to have a flexible toolkit. the key is to look at different .evers to pull there is a great deal of embedded risk in this market. buying a high quality bond at these yields requires an extreme degree of confidence that yields will remain here or lower. -- that implies a failure to generate any meaningful growth or inflation. fact we are talking about an expanded toolkit. vonnie: is there a point in which investors need to get out? henry: it is hard to forecast that. right now the 10 year yield looking at core inflation is negative on a real basis. that is not sustainable to us. movement ont is any the part of the japanese to partly reduce that. that could bring about a higher risk appetite in the market. there is going to be a solution at some point and timing that is very difficult. mark: what is more likely, japanese coming out with a measure to permanently reduce or the japanese coming out with helicopter money sort of measures? i think the two are one and the same. debt financing or debt reduction would be direct fiscal stimulus into the economy. boj owns a very large portion of the debt. virtually every bond out. there talking about 40 year debts. it is similar to helicopter money without being called that. i don't know what move it would take to get it efficiently -- make it -- take to get it efficiently announced -- take to get it officially announced. mark: henry peabody there, portfolio manager. morekes place at a penalty on pit u.s. stocks bouncing back after a two-day slide. >> pretty much as forecast, you can see stocks are rising. the dow is up 6/10 of a percent. the 10 year yield, 1.53%. this is bloomberg. ♪ howie: let's get a check of stocks are reacting to headlines from janet yellen. the dow is only 76 points away from a record. a gain of 14 points to the s&p 500. the actionstingly is in the dollar. it is being weighed down. no release therefore dollar gold following janet yellen. vix. drop for the mark: employed to give a straight market check. this is the stocks year of 600 index. a little changed at three :00 local time, 10 a.m. new york time. movement has been equity indices. gain.ck for a weekly it has alternated between gains and losses for the last five weeks. this is the u.k. 10 year yield. back up. moved it is literally down by a basis point. and there is the pound against the dollar, which has been swinging around. but the big move has been in equities. you are watching bloomberg. ♪ mark: to investors flocking to index funds and etf's, is this trend toward passive investing ?eading to marxism digging deeper into a controversial report this week is bloomberg's ramy inocencio. eric, passive management. walk me through this, who actually put this out and what does it mean? eric: you put marxism in the title of anything it will create some buzz. the numbers that are happening are really threatening the livelihood of a lot of people in the financial industry. we have seen 1.2 trillion going into it hedge funds and etf -- into hedge funds and etf passes. when hedge funds swings to passes, it means a decline in revenue. i think everyone is on edge. but what this is saying is he's making the case that everyone has a social role. he thinks regularly are getting a little to cheerleader-ish. they allocate money properly where an acid fund market puts all the money into the index. that is what the report as saying. >> you say the report looks at a couple of different things. eric: activists still have a large chunk. passiveything that is is passive. there he is very actively. they trade more than stocks, there is a lot of act of management going on in the etf. they actually use fundamentals to screen away the stocks. the bigger point here is it is not an active passive trend. it is a high cost trend. they have developed a trust with their clients that they are still getting money, so there are places where activists are bucking the trend. and i think this is more of a high cost-low cost trend. remy bank we will have to leave it there. : we will have to leave it there. back to you. vonnie: thank you. this is bloomberg. ♪ hey how's it going, hotcakes? hotcakes. this place has hotcakes. so why aren't they selling like hotcakes? with comcast business internet and wifi pro, they could be. just add a customized message to your wifi pro splash page and you'll reach your customers where their eyes are already - on their devices. order up. it's more than just wifi, it can help grow your business. you don't see that every day. introducing wifi pro, wifi that helps grow your business. comcast business. built for business. vonnie: from bloomberg world headquarters in new york and london, i am vonnie quinn. mark: i am mark barton. you are watching "bloomberg markets." vonnie: let's turn back to michael mckee live in where janet yellen just set the case for a rate hike in the u.s. have a look at the function and you can see that traders are not necessarily agreeing we are going to see a rate hike in september. definitely the odds for a september increase have gone down. does that surprise you? michael: it is a little bit surprising. janet yellen was perhaps as direct as she ever is in saying in her speech that the economy had improved and her quote was "i believe the case for a rate hike has strengthened over the is really -- as previously as july she said they .ould not height -- hike rates we heard from stanley fischer and bill dudley, who did the walk with her this morning. they thought the case had strengthened so you have the core three saying rates could go up, and you add that they are a data defendant fed and what they are probably waiting for is the jobs report that friday, the cpi report in september before the fed meeting. if the data is supported than a september move becomes more likely. vonnie: that move -- that meeting is on september 20 and 21st. if you look at treasuries, we are looking at lower yields and a flatter curve. well so itties as does not look like the markets believe that the u.s. economy will grow more quickly than it has been growing, or that it will reach that inflation target anytime sooner than janet yellen , in the next few years. that does not bode well. michael: she is making no promises because their position is, we do not understand what is going on in the economy either. she made a specific reference to the bond market and the idea that the fed does not know exactly why rates are so low and the sovereign market. there are a number of explanations including money flowing in from overseas, and the fed is not sure why rates are so low and why the markets are doing what they are doing. it is maybe a little bit surprising that they are reacting this way but it is part of the whole conundrum fed faces in trying to figure out what to do. if you do not understand what is happening, it is hard to figure out the prescription. mark: the headline across the bloomberg is low neutral rate to .ive fed less go for cut let's push forward to inflation, a lot of the discussion has been lifting the inflation target. what sort of flexibility with this give the fed? michael: if you let the inflation target -- lift the inflation target it gives you more room to cut. yellen pushed back against that saying they are not actively considering that even though it has been brought up by some members of the fomc. she did note that the fed is considering 3% the long run range for the federal runs rate although wall street is pushing it much lower. she says the fed cannot -- pushes back against the fed not their reaction- has been removing the excess tightening. they could still lower rates from where they are. if you get into the bloomberg, look at function tayl . we will be speaking with john taylor later. you can see the spread between where he thinks the rate should be and where it actually is. michael mckee, we have to leave it there. mark: earlier today from jackson hole mike challenged jim bullard on the feds data model, particularly efforts to generate inflation along with kathleen hays. the datalard stands in interpretation and policy implementation. time to rethink our normalization plans and the way we are presenting our normalization plan. plotou look at that dot which has them going up any moment 200 basis points, i think that is the not -- not the right characterization so that is where we came up with this idea of, let's not pretend we have a lot of certainty about where the long run outlook is. we are in a low productivity growth environment and a low real rate return on government player -- paper, and those are the parameters we are working with. and then keep an eye out and see if those things twitch in the future. >> one of the things people are talking about, what is going to happen for the next recession? by 400 to 500 basis points. with the rate already so low, what is going to happen in a recession as the fed seems to be at an impasse? >> i am not one that talks about, let's raise interest rates so we can lower than later. if you look at this paper by david schneider, a board staff person, he said there probably is quite a bit of ammunition out there so that is the best way to look at it. some of it would be lower rates, quantitative easing, and forward guidance. if we deployed the things we have deployed last time we could probably get through a recession and even do well. >> is your goal to put a floor under the recession because you have done qe, you have cut rates to zero, and we still do not have any measurable inflation? >> inflation is low but not that low, maybe half a percentage point or less below our target. is that 9/10 right now. but some ofair, that is driven by energy pricing. it is pretty low. but unemployment has come down below 5%. we are basically right on target for that. inflation is a little low, we think it is going to come up. >> but we are not generating inflation or growth from monetary policy. policy does not drive growth in the medium term and long run. you can have a temporary effect but that wears off. long run iserm and driven by productivity trends and population and labor force trends. those things need, if you want that to be better and ideal, you cannot do that through monetary policy. monetary policy is about cyclical movement. vonnie: that is jim bullard from jackson hole. when wehear much more speak to former richmond president alfred broaddus, and from jackson hole, professor john taylor live starting at 11:00 a.m. eastern, 3:00 p.m. london time. mark: let's check in with bloomberg first word news. >> strong aftershocks have been rattling central idiot and have shut down a key route into the hard-hit town of amateur he's. ice.matr at least 267 people are confirmed dead. a state funeral will be held tomorrow and flags will be flying at half staff on all public offices. turkey, militants attacked a police checkpoint with a truck full of explosives. according to turkish authorities. last year, violence reserve -- resumed the between the police and kurdish resistance. senators in brazil have started a second day of deliberations in the trial of president dilma rousseff, accused of breaking fiscal rules. she denies any wrongdoing and argues her enemies are carrying out a coup d'etat. areesses for recess expected to testify today. chaos inolding -- libya. the minister was seeking to negotiate with minors when they sue's -- seized dynamite. global news 24 hours a day, powered by our 2600 journalists and analysts in more than 120 countries. i am alisa parenti. this is bloomberg. mark: just want to show you the price of oil right now. it is higher and it is spiking 21.5 considerably, of percent from being little changed. we are getting reports of a yemen missile hitting saudi aramco. this is according to yemen's television. as soon as we get it officially we will bring you further details. nymex crude up by 1.75%. ♪ vonnie: you are watching bloomberg, i am vonnie quinn. mark: i am mark barton. this is your global business report. vonnie: janet yellen gives a strong clue on the future of interest rates and other policymakers are making the case for a rate increase now. sab miller plans to eliminate thousands of jobs to save money. vonnie: social security for everyone, should the government guarantee every citizen an annual stipend, no strings attached? we begin in jackson hole, wyoming where most of the conversation is on the future of the u.s. interest rates. janet yellen said conditions are improving to support a rate hike and fed policymakers agree for the most part. robert kaplan said the may -- the time may be right now to raise rates. >> we said rates should be raised patiently and gradually and cautiously. part of what i'm thinking is the impact on the dollar potentially destabilizing effects on the rest of the world. it does not tell me we should not raise rates but it should be pastry -- patient and gradual. britain, consumer confidence is bouncing back after the initial vote to leave the european union. consumer sentiment rose the most in three years. not clear how this may turn into economic activity. the bank of england cut interest rates to new records. anheuser-busch inbev planning to cut 55,000 jobs after the takeover by sab miller is complete. the cuts will be made over three years. $3y can save four point billion a year after the takeover. in france, second-quarter earnings that missed analyst estimates as its pay television continues to lose money. net income fell 1.3%. vivendi say they also plan to cut costs. vonnie: time now for our bloomberg quick take where we provide context and background on the issues of interest. now we talk about universal basic interest in the u.s. -- here is the situation. this past june swiss voters soundly rejected a proposal for universal basic income which would have given citizens to and a half thousand dollars every month. this idea is not unique. finland and acted a study on the idea, and it has drawn interest in canada, the netherlands, and kenya. in 1960's a basic income was part of the discussion and richard nexen proposed an income floor. aimsf milton friedman's was to end the "earnings cliff." this discourages recipients from working. credit which was adopted instead is considered an affected -- effective anti-poverty program. conservatives, the attraction of basic income is smaller government. that social welfare programs costing taxpayers about a trillion dollars a year could be folded into a basic income program. many liberals fear it would be less than what many people get and all of the federal government's cash and social service programs are combined. studied trialsho in canada during the 1970's said residence where healthier and finished school. that is your bloomberg business report. had to the bloomberg for more stories. mark: the rand is heading for its biggest weekly drop since february against the dollar amid speculation that the finance underscores jobs on the line. in johannesburg, thank you for joining us. take us through this story as the week has unfolded. how did it start, where are we, and is his job still on the line? heading for its biggest weekly decline since may. we have seen dollar weakness really helping the rand return back to a bit of better footing. what we did see is that initial after theon tuesday reports came out of the finance minister had been summoned by a police unit to come in for questioning. unitall involving a spy that was formed at the tax collecting agency. we know the finance minister refused to present himself for questioning. we did see further declines on wednesday. the rand lost over 4% of its value between tuesday and wednesday. fromdid help were comments the president that came out on thursday in which he expressed that he had full confidence in the finance minister even though he cannot directly intervene in the probe that is currently ongoing. mark: why didn't those comments continue to pump up the rand, to give a boost to government bonds ? is there a fear he could lose his job and investors are worried about that potentiality? amo: there seems to be a real perception that the finance ministers job is on the line. that is not being unfounded, given that we saw the bond thatnd by the most since december dismissal of the former finance minister. that was an abrupt decision made to fire him. the rating agencies are kept on easy because of the developments that happened eight months ago. what we do know is that the finance minister has made it clear that he wants to continue with his mandate to steer this .conomy, which is struggling probably only going to have about 0% growth this year, and to stave off any credit rate downgrades. we also saw politicians including the deputy president of the country coming out strongly, saying the process has to be overseen in a very delicate way, that it threatens the economy and the credibility of the government. it seems as though the finance minister's job may be safe but we still have to see a response from the police unit that called him and for questioning. mark: thank you. every currency in the world, all 31 of the big ones have risen against the rand this week. vonnie: we have to watch out for that credit rating and whether he gets downgraded. -- we will tell you why, next. this is bloomberg. ♪ vonnie: you are watching "bloomberg markets," vonnie quinn in new york along with mark barton in london. we are going to turn to sweden and central-bank policy. the man in charge has signaled they may be reaching the limits of how much more in government bonds it can buy. he made the comments amid signs liquidity is suffering. does this mean the end of quantitative easing for sweden? you'll on carlson joins us from stockholm. we asked that question. does it have a choice? choice to have a continue but the question is, how much can it continue to keep buying swedish government debt? there are signs that liquidity, the initial signs that liquidity may have started to hurt a little bit. vonnie: a lot of markets are ill liquid but central banks are still buying. why are they saying this? concerns are that the public debt is very low compared to other countries. bank, toto zurich's have been buying about a third of all nominal debts in sweden, almost twice as much as the ecb. the concern here is obviously that considering that sweden has very low debt and the banks have been buying a lot of those bonds , there is a big chance that liquidity could start increasingly to hurt going forward. that is why this debate is going on about where the limit is. mark: let's have a look at this chart. this is the 2% target rate. if you can see this, it is the orange line. the interest rate is the blue line which is negative. you have the cpi which is creeping up. it is at 1%. bank at least heading in the right direction? has the qe program been deemed at least partially successful? johan: i think you could say it definitely had an effect and you are saying that like you said on inflation. the problem, inflation has been heading north and that is something the riksbank board members have been keen to point out there last few speeches. the problem that a lot of analysts are seeing is that, accelerating, will inflation keep accelerating? the krone has been strengthening and that is not a good thing for inflation. most in the region do not think the riksbank will be able to raise rates anytime soon, not even next year. mark: we will chat more about this in due course. bloomberg's swedish economic reporter in stockholm. coming up next, we will bring you all the market reaction as europe's stocks move higher today on fed chair janet yellen's speech. we will be speaking to alfred broaddus and economist john taylor live from jackson hall. close,tes away from the stocks getting a boost from janet yellen's speech today. the case for a rate hike is strengthening. the stocks euro 600 is on track for a gaily dust a daily gain and a weekly gain as well. the european close is next. we are literally 34 minutes away from the end of the friday session. this is bloomberg. ♪ vonnie: it is 11:00 a.m. in new york, 4:00 p.m. in london. from bloomberg world headquarters in new york, i am vonnie quinn. mark: i am mark barton. you are watching the european close on "bloomberg markets." we are going to take you from washington to tokyo and cover stories at of the u.k. in germany in the next hour. here is what we're watching. janet yellen says the case to raise interest rates is getting stronger as the u.s. economy approaches the central bank's goal. we will talk to a former fed president on whether it is time for lift off. vonnie: according to the taylor role, it is several years and rate increases behind. we will hear from the man himself this hour. inbevts coming for ab with as many as 5000 positions to be eliminat