The Fed, Inflation and the Path Ahead

latest balloon shot down likely not for intelligence gathering. Senators asked the President to address the public regarding the balloons. President she pledges to deepen ties with Iran. Nikki Haley's in I'm at Baxter with Global News Byron Munich gets past ps GENA Champions League Round of sixteen, first match. I'm Dan Schwartzman. I'll have that story more coming up

in Bloomberg Sports. That's all straight ahead on Bloomberg Daybreak Asia, the business news you need to start your day, and just one fifteen minute podcast available on Apple, Spotify, the Bloomberg Business App and everywhere you get your podcasts. Good morning, I'm Do Prisoner and I'm Brian Curtis. Here are the stories we're following today. CPI data shows investors are realizing that inflation is likely to remain higher for some time

to come. Former I m F Chief economist Ken Rogoff told us that the feds two percent inflation target remains part of the problem. Back in the day, they should have set three percent instead of two percent, but they didn't. And you know, they've really made commitments. If you change it, it means you might change it again. So I think what in fact will happen. I don't think we're going to have a soft landing, by the way. I think

we're gonna have soft but not the landing. I think inflations they're gonna allow to be alibated for longer, but they're gonna say it's going to get back to two percent. We're just taking longer. I think that's going to be the rhetoric. Rogof added that the Fed will have to figure out where to put the interest rate longer terms so that the US doesn't have inflation. So after that CPI report, the Fed officials began stressing the need for further rate increases. We heard from the head of the

Dallas Fed, Lory Logan. She was saying much more it may be needed, and the FED should not lock in on a peak interest rate or a precise path of those rate increases. We also heard today from the head of the Richmond FED, Tom Barkin. Here's what he had to say earlier on Bloomberg. We may or may not choose to take rates up further if inflation continues to persist, but we'll have to see what happens. If inflation settles,

maybe we don't go quite as far. But if inflation persists and levels well above our our target, maybe we'll have to do more. Richmond Fed President Tom Barkin. Then later in the day it was John Williams, who runs the New York FED, saying subdued economic growth and labor market weakness will likely be required to bring inflation back down to that two percent target. Not to be left out Pat Harker, the head of the Philly FED. He added his voice in believing the Fed will need to

take rates somewhere above that five percent level. He also said data will dictate how high the Fed will need to go. Well life goes on, we have President Biden naming FED Vice Chair Lal Brainerd as his top economic aid. She will replace Brian Deese as head of White House National Economic Council. More from Bloomberg's Michael McKee Leal Brainerd has a lot of experience in Washington. She was Deputy

Treasury Secretary. She was the deputy head of the National Economic Council before, so she has worked on the political side for many years as well as on the monetary policy side. So she knows everything about what's going on in Washington. And she is also considered to be a very capable kind of I don't want to use the word bureaucrat, but somebody who knows how to get things done. The FED said that brainer had submitted her resignation as

vice chair and it's effective on or around February. Her departure means the FED will no longer have one of its most devish voices. FED watchers wasted no time coming up with potential replacements. Names circulating include Karen Dinon and Janice Everley, who served as economist in the Obama Treasury Department, and Brian Sack, the one time head of the New York FEDS Market Group, was also floated as a possibility.

And I say life goes on. We often think that it's all about the FED and is all about rates that people do change jobs and go about their business. Indeed they do. After the bell, Airbnb gave an outlook for revenue in the current quarter that was above estimates.

More from Bloomberg's Charlie Pellett. It signals that travel demand remains robust even after a record here for growth in two Airbnb has been a major beneficiary of the work and lifestyle changes brought on by the pandemic, and now it's starting to see some of the trends that benefited from such as people renting large rural homes for weeks or months at a time reverse and travelers off for shorter stays in big cities and more international destinations in

New York. Charlie Pellette, Bloomberg Daybreak Asia. Air India is behind what stands to be the largest purchase ever made in commercial aviation history. Bloomberg's and Kate's with the story. Air India has announced a four hundred seventy plane order with Airbus and Boeing, underscoring the industry's recovery from the pandemic and the airline's ambition to become a global force. The deal involves two hundred fifty Airbus jets and two

hundred twenty Boeing models. President Biden and Indian Prime Minister Norndra Body held a phone conversation to discuss the transaction. Body called on Boeing and other US companies to explore opportunities arising from India's civil aviation sector in Washington and Kate's Bloomberg Daybreak Asia. Well, Doug, I have to say this, Um, it's bad that goods disinflation has slowed a little bit

for people hoping that inflation would come down sharply. But it's it's good that services ex housing, which is kind of tied to wages, only rose zero point three sent month on month net net. I think from the equity market standpoint, don't follow out of bed just yet. Yeah,

you're right about that. And I think if you look at what the Cleveland Fed is saying, maybe some worrying signs they're underlying inflation tracker is pointing to some price pressure persisting both on a monthly and a twelve month basis, so in selected pockets, I think you're right, Brian. You've got to be very careful about saying that inflation the problem is beginning to kind of wane a little bit.

It may be sticky for some time. People seized on Patrick Harker's comment that we're not done yet, but we are likely close. Yeah, but that's also to say that when they get to wherever their destination point is, the so called terminal rate, things may end up being held higher for quite a bit longer. The other thing that I thought was interesting today we were talking about FED speakers. John Williams from the New York Fed was pushing out

rate cuts maybe sometimes into or even Yeah. Absolutely. Now it's time for global news. The US says that three of as of yet not identified objects down since Friday. They don't appear to be government linked. That Baxter has Global News from the nine six newswom in San Francisco. Yeah, right, Brian. The Pentagon is saying likely for commercial use and not foreign intelligence gathering. And the White House says now that China has been launching balloons over the US for years,

but has just recently ramped things up. National Security Council spokesman John Kirby, we have been studying the Chinese by balloon program since we came into office. This is a program that they have been working on for several years, so they have ramped up their abilities. They have ramped up their deployment of these balloons over just recent years. Yeah.

Kirby says Congress was briefed about it and classified setting going back to last August, and the full Senate got a classified briefing about the status today and Bloomberg examily Wilkins says, the overall message coming up a call for transparency, and really what you're getting from senators is a call for transparency, a call for the Way House to take this issue seriously and even if we don't know every last detail about some of these objects, to make sure

that they're just clearly communicating with the American people on this because of how sensitive this poticial potential issue could be. Emily says, they call for a speech by the President and Leon Panetta, former U S Secretary of Defense, c i A Director Presidential Chief of Staff today on balance of powers says, one explanation for the recent change in

balloon activity is carefully thought out by the Chinese. China may very well be harassing us with these objects, UH to try to create the kind of confusion that's taking place in Washington right now is how we deal with it, and says so far as succeeded. We've got to have a strategy. I think if they are related to China, all of them, then we've got to develop that strategy,

hopefully in conjunction with China. If not, we're going to have to continue to shoot him down if they represent a threat to the United States or to our airspace, and he says Biden has done the right thing so far. Meanwhile, the Pentagon scrambled fighter jets to counter for Russian aircraft that approached but did not enter US or Canadian airspace. Fishers describe it as a routine encounter, unrelated to the

series of unidentified objects shot down in recent days. Nikki Hayley is officially a candidate for president of the United States. In her presidential video to the here announcement, she immediately pushed buttons on China and Russia. John and Russia are on the march. They all think we can be bullied kicked around. You should know this about me. I don't put up with bullies, and when you kick back, it

hurts them more if you're wearing heels. She also says it's a time for Republicans to win the popular vote again. Global News powered by more than undred journalists and analysts and over one hundred twenty countries. In San Francisco, I'm at Baxter and this is bloom This is Bloomberg, Gay Break Asia and Brian Curtis along with Rashad salamat here in Hong Kong. Our guest is Rebecca Walser, President of

Walzer Wealth. Rebecca we mentioned that the equity market seemed to take this CPI report more or less in stride, while the bond market reacted much more sharply. Why well, because the bond market obviously has an inverse relationship with rising interest rates. And even though we all believe don't fight the Fed, what we've seen as the market really

pushing the Fed to change their position. Right. They all priced in a QW three pivots, and we all the Fed has been very consistent from the beginning that this could be a long road and that they've constantly talked about getting inflation to a specific level for a sustained period of time. So when you have a CPI number that shows, you know, Mrs consensus is showing that the inflation is not happening in US fast, or disinflation is

not happening as fast as expected. The market has to start saying, okay, hike in March and a hike in May is not going to be sufficient. We're going to have to hike more. And being a a you know, a terminal rate of five two or five to five is not going to be enough. And if you guys can remember, if you look at the analysis that we really saw in two, the analysis was broader. It always said that the terminary should be somewhere between five and seven. So it was really the market that was kind of

clued in onto the lower end of that range. And you see Jamie Diamond coming out last week saying, you know, the sign might have to go to six. And this is just indicative of that. Uh I mean, what has to look at the data a bit more? Uh I suppose in a granny of fashion, because if you look at it, it's shelter, which was the main reason why

we still such an increase there. Now what does that tell you, Well, it tells me that we still have a very mobile society that hasn't quite felt the pinch of maybe we would have thought they would have felt because that means that people are still mobile, they're still moving, and they're still making the prices of you know, where they're living continue to a fleet. Whereas if you have a demand destruction like we've had in some of the you know the the uh you know, just disposal income,

you know, goods. You see that kind of demand destroying, but you can't, you know, you should be able to pick a cheaper place to live. But like I'm based in Florida and everyone is moving here. My city specifically is like now the number one city a coordinate to Forbes to move to in the United States. So people are still very mobile. Go ahead. In any case, shelter

is is longer term. It takes longer to adjust because if for nothing else, one year leases in such But many, many economists are saying that's going to drop like a stone in the second half of this year. You agree with that, um, I I think that it should have already dropped. I mean, it's it's been amazing how tack you know, how sticky this has really been because we see all of the there's just a wide breath of data that we see that we would expect you have

already dropped and it's just being really sticky. So I I hate to make it pretty action as fast as next uh, next quarter, but I honestly think that we it has to drop. People can't afford these rates, and we've seen mortgages and honestly housing US starts and all of that completely affected by interest rates. And so it's the rental market that has to come next. Okay, let's have a look now at the overall markets and what

they're having to deal with. It's just you know, you've got the FED, You've got the inflation I think is of course very much dominant. But let's not forget we've got Ukraine still, We've got balloons as well, all causing confusion here. And on top of that, I think you mentioned in your notes that the bird fluid new strain of bird flu is also something that with one of the geopolitical risks here as well. So it does seem

as they're being attacked on all sides. The confluence of factors um geopolitically, macroeconomically, I have we've never I've never experienced obviously before probably not since World War Two have we had these kinds of massive factors. The difference now gentlemen,

is that we are an interglobally a pendant world. We have, you know, globally outsourced most of our manufacturing, obviously to Asia and America, and we rely on them a lot to provide us our pharmaceuticals and and and everything that we live off of. So when we have a globally, um, if we have a geopolitical risk, if we have a Ukraine Russia with NATO kind of coming in and no longer being proxy, but now we're sending tanks between Germany

and the United States and we're moving. I mean, Joe Biden said himself last year that if we send tanks to the United sitstens tanks to Russia, are to Ukraine, it's World War three. And now that's what we're doing. So you could have any factor pop off and really create additional economic distress. So lots to weigh up there, Rebecca. But if we look at this most recent news, the CPR report, would you be making changes major changes as a result. You know, I I think that it was

exactly what I expected. I expected that it was going to be more sticky than the market was stating. You know, Larry Summers, I agree with his point on Friday on Bloomberg, which was basically saying, we're just not taking it seriously enough. The market has really been trying to push the FED for a faster pivot, and we just don't have the

ability to do that right now. People have to remember that, you know, we had a lot of stimulus release since two thousand and eight, really low cost of capital, and we have really had a lot of results from that, and it's not going to be as much as we all felt like, okay, here, let's gets back to a normal year. We just aren't there with the fundamentals of the economy at globally, and so until we get closer to that, we're just going to have to bear through this.

And it's horrible. I'm the first to be like, can this just be over? Can I pick my sectors and can I trying to fully reopen? And can we get GDP back up from the three percent of business number they had last year? We need this for the global world, but yet the conditions are not there yet. This is Bloomberg Daybreak Asia, your morning brief on the story is making news from Hong Kong to Singapore and Wall Street. Look for us on your podcast feed every day on Apple, Spotify,

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Bloomberg dot com. I'm Brian Curtis and I'm Doug Krisoner. Join us again tomorrow for all the news you need to start your day right here on Bloomberg Daybreak Asia