Vonnie gasoline inventories, that showed a build of 3. 3 Million Barrels. Is thaty the headline crude Oil Inventories showed a 1. 1 5wn last week of Million Barrels. It has been a risk off tone. Energy companies are benefiting from the spike in oil prices on both sides of the pond. Decline500 is showing a of 0. 75 . It is following the other indexes lower as well. Analysts showing stocks higher. Some of the Security Companies like Lockheed Martin is up 3. 4 . Guy european stocks are down. They are off their lows. The ftse 100 is now positive. The ftse 100 has lots of oil stocks in it. The dax is underperforming in europe. The aviation sector under pressure today. The bond market is catching a bid, moving six basis points on a german tenyear. Brent crude elevated. You would expect brent to be a little more aggressive of a move in the middle east rather than wti. The ism number today not exactly great, plus this story out of the middle east. Vonnie this will be all of the talk at the American EconomicAssociation Meeting in san diego today. Right now numbers Michael Mckee is there, and he is standing by with a special guest. We will hear now from chicago fed president Charles Evans. Michael thank you very much. Welcome to Bloomberg Television and radio worldwide. Thank you for joining us this morning. Starting off with some bad news, dismal numbers from ism on manufacturing, the lowest since the Great Recession ended in 2009. Does that shake your confidence in the durability of the expansion . It does not. I guess im a little surprised by the week number. Manufacturing has been struggling. It has been contracting recently. I think the train policy uncertainty has been part of that. The gm strike was part of that. It is over. One thing that has been good for ,he economy is with gdp growth in looking for 2 to 2. 25 2020 and a strong labor market benefiting the consumer. We think the economy can continue to grow even when manufacturing is contracting a little bit. I think we have a resilient economy. Michael why is manufacturing contracting . Is this a selfinflicted trade war wound . Charles obviously the Auto Industry has plateaued the previous year. It has been softer. You had the gm strike. That impacted suppliers. I think the trade tariffs on agricultural has had an effect. We have not exported as much soybeans and pork. The farmers are struggling. They are not buying as many heavy equipment pieces. That has been a problem. I think not knowing exactly where your supply chains might lie productively on either side of the border when you are uncertain about tariffs, and there has been a lot of uncertainty, so business has been slow to continue investment. I dont need your way to early hot take on iran, but let me ask you this, how fragile is the recovery and expansion at this point in terms of confidence . Business confidence is low already. Does that put the expansion and recovery . Charles i think it has been quite good. The labor market has been strong. The Unemployment Rate is 3. 5 . A lot of people have been brought into the labor market who did not have a strong attachment to the labor market in previous years. They are enjoying the benefits, Income Growth fueling robust conception at the moment. Eary ofses have been w investment. The president says the u. S. And china will sign phase one of a trade deal. Events current overnight questionre certainly a mark, and oil prices are up a little bit. I think we have a good, robust, resilient economy that is growing a little above trend. Michael oil prices at all worrying . Charles in general they harm consumers. We export more oil now, so it is more neutral than it used to be. That is not a problem. Michael you say basically a 2 economy, and unemployment is at 50 year lows, does that tell you we have had a very long expansion and that is why more people are getting jobs, or is it any kind of sign of strength for the economy Going Forward . Charles i think growth decelerating towards trend growth, and i put trend growth towards 1. 75 , so 2 is above trend. I think we have had a long expansion. The labor market, unemployment going to 3. 5 , more people going into the labor force in the face of declining Labor Force Participation trends due to demographics is a good sign for the future when people who previously did not have strong attachment to the labor force are getting jobs and moving to other jobs, so i think that helps. I think the fundamentals are good. It has been a long recovery. It has come from a very low point after the Great Recession, so it has been a good run. Im looking forward to continuing growth. After 11 years of expansion, everyone is looking under rocks for the reason it is going to end, what are you looking for . Charles what do i worry about . There are always risks, obviously International Events concern you. Inflation has been low. At this point in the cycle, we really need to get inflation up to 2 and above 2 . We have said for a long time that our objective is to percent. 2 . We have been below it for quite some time. I think in that environment, there is no reason to be concerned about low Unemployment Rates. I think the strong labor market is an attribute. We need to keep focusing on getting inflation up. Monetary policy is accommodative, supportive of all this. It also has a bit of Risk Management positioning so if we face a few more obstacles over the next six months or year, policy is accommodative, and so we are wellpositioned to respond as necessary. Michael what is your best guess as to why inflation does not rise . Charles it is a good question. Growth rates,wer trend growth rates we have been facing have been a puzzle for monetary economists. For some time Central Banks have been thinking Interest Rates are very low, and they should be rising naturally to something more neutral. I think judging how low neutral policy rates are has been difficult for everyone. Looking back, i thought our rate increases in the past were well justified. I thought we were still accommodative even before we decided to pause and reduce Interest Rates. Accurate with an judgment on what neutral is and how much accommodation to put in place is difficult. We would have been well served if we had been a little more conservative and not raised rates as much. I dont think it was a mistake. I think it was a misunderstanding. Getael if you work able to if you were not able to get inflation up as unemployment fell, what makes you think you can do it now . Charles we need to focus on getting inflation up. I dont think we should be overly focused on the Unemployment Rate being low. I think it is a good thing. It is consistent with a strong economy. With our financial instability concerns that you might be worried about, because of low Interest Rates for a long time, you need to make a judgment as to what neutral rates are and whether we have the appropriate Regulatory Environment in place. I think we do. After doddfrank, we have banks. Ith more and Better Capital federal agencies have been looking at whether there are ways to make modest adjustments expandan continue to expansion and keep the economy going in a natural way. I think does have been good actions. We are wellpositioned. Michael this brings us to the policy review. We are about a year into it. Where do you think it is . Charles that is a great question. We have had a lot of great discussion. We have benefited by focusing on what do we mean when we say maximum employment . How should we think about how Unemployment Rates benefit people in a strong labor environment . Is that something we need to push against if we are concerned about inflationary pressures . Whated to clarify the we mean by symmetrical inflationary pressure. Inwas our objective back january 2012. I think we need to overshoot. We need to be not concerned about inflation even if it rises above two. 5 on a sustained basis. We need a framework 2. 5 on a sustained basis. We need a framework. There has been too much artfulness to the way it is described now. Michael it sounds like you are with the majority of the committee on doing something with inflation. Would you agree . What about changing the target to a range . Charles these are all options we have discussed a little bit. We need to make some judgments as to what is most effective. I think coming up with a pretty clear explanation of what we mean by symmetry is important. That,ange is helpful for we can articulate how we respond to different inflation settings within the range. I think that is important. Averaging could be a component of that. At some point, you need to be able to explain to the public why you are comfortable with sayation at 2. 25 when you 2 is your objective. We seem to be able to explain that we are comfortable with 1. 5 inflation as long as we are aimed upwards. I think we need to be more clear about that. Michael one of the questions this year is what was to you have for the next recession when Interest Rates, you have about 150 basis points on the short and and about another 30 on the long end even if you do qe . Charles i think the now standard tools would come into play, lower Interest Rates, lower Interest Rates for a longer time providing some type of Forward Guidance for what the circumstances would be for why you are in that situation as long as you are. One way or another, all of the tools and how you use them need to provide confidence to the you are public that going to do everything necessary to get the economy going again and inflation up to your objective. Whatever additional tools provide that confidence is really important. I think a full throated endorsement of a symmetric 2 inflation target is part of that. We need to get inflation up to 2 as quickly as we can. In the face of the downturn and slow recovery. Explaining why it is perfectly fine to go about 2 in pursuit of a symmetric target. Low rates, low growth, low expansion, are you happy with where the economy is . Is this about the best it can do . Charles i think you are onto something with this. It has certainly been the case that low real equilibrium Interest Rates and fiscal policy has not really helped out much in terms of adding aggregate demand. I think in terms of the first fiscal stimulus in 2009 was certainly helpful, but it could have been larger. There are a number of fiscal projects that need to be taken over the next 20 or 30 years, infrastructure improvement. Bridges and underpasses and things like that. Why not have a plan so that we have that type of fiscal support in place and ready when you need more of it . I think the physical environment is an important part. The International Environment is an important part. When the entire World Economy is growing strongly, that benefits us in terms of Interest Rate policy. There is a lot in play, and i think we need to be aware of it. Michael hopefully we will be talking to you about it throughout 2020. Charlie evans, chicago fed president. Vonnie our thanks to bloombergs Michael Mckee at the American EconomicAssociation Meeting in san diego. We will be hearing more from the Federal Reserve president s later on. First, it is interesting to hear Charles Evans talk about the spike in oil prices, how we might get a little inflation from that and the ism, he was surprised that we went deeper into the 40s. It is not that great of a sign for u. S. Manufacturing. Guy i wonder how much of this will change over the next few months, assuming that we do get some trade deal. December was about this news that inflation would come back, that the trade deal would get done. To changeame too late hearts and minds within the manufacturing sector. If we do get a phase when deal, if it does get signed a couple weeks, maybe things start to improve just a little bit, and maybe some of this data in the u. S. And around the world, you saw it in germany yesterday, starts to improve. At the moment the data is bouncing along the bottom. Could that trade deal provide that . Vonnie those data were much lower. We are talking the low 40s. We still have some room to go. We may not get there. Fedr, we hear from president loretta mester. This is bloomberg. Guy welcome back. Lets check the markets. Lower acrosss are the world. The stoxx 600 is down. Well off record highs we touched yesterday. The risk off tone is confirmed when you look across asset classes. When you look at safer assets, u. S. Treasuries down. You are looking at a bid into gold. A big boost into oil. Wti is up 3 . Energy stocks are also taking part in a rally today. Also defensive stocks getting a boost on the prospect of more defense spending. You have airline stocks, they could be potential retaliation impactedd negatively by higher fuel prices. American airlines down by vonnie 4 . Irans Supreme Leader vowing to retaliate after a u. S. Airstrike killed one of irans most powerful generals. For more on these developers, we leadsined by bill, who Bloombergs National security team. What is the current stance from the white house . It seems like they want to deescalate things, but is that even possible at this point . In,t is hard to reel this especially so soon after last nights attack. The u. S. Is saying it had evidence of an imminent attack on u. S. Facilities or personnel that justify this strike on the top iranian commander at a baghdad airport, where he frequently traveled to work with allied militias in that country they the u. S. Says it has justification that country. The u. S. Says it has justification. They are not interested in a war with iran, but given the personality they targeted here, it is difficult for iran to not look in the coming days and weeks and months for some way to retaliate. Guy can i come back to the legality issue of this attack . Atn and the u. S. Are not war. There is this anticipatory selfdefense defense that is being mounted him about the details are sketchy. When are we going to get the details as to why this is an acceptable attack . I think we are hoping or expecting some Administration Briefing later today. The administration is time to get ahead of any criticism that this was somehow a targeted assassination, which is generally prohibited, by saying we had intelligence that there was something underfoot, that they were going to target u. S. Assets in the region. You have some support from allies saying there was evidence that backs this up. We will be looking in the coming hours and days ahead for more details about what exactly the u. S. Had, what evidence backs that up and what might have been planned. Brigadier general do we know anything about this soleimani heike might be . Everyone is replaceable at some level, but if anyone was truly indispensable, he was that figure for iran. Has a tremendous impact on the politics in iran and the region. They are very big shoes to fill. I think people will do their best to replace him, but i dont think he is somebody who will be easily replaced by one person. Vonnie thank you. This is bloomberg. Vonnie check in u. S. Markets now, we are lower, reversing yesterdays gains and then some. The Dow Jones Industrial average down 0. 8 . The nasdaq is down 0. 7 . We are Holding Around those levels. Guy london is up. We are in positive territory. Lufthansa under pressure. We will deal with the details in just a moment. Three minutes and 40 seconds until the european close. This is bloomberg. Guy 30 seconds until the end of regular trading this friday. The second trading day of the year. Felt different than the first day. We cap lower on news out of iraq. With the ftse 100 is now flat, the cac 40 is flat. Is down overe dax 1 . There is the gap lower. Since then we have moved in a tight range. We are off the lows we hit earlier on in the session. The individual markets around europe tell the story of the relative makeup of these different markets around europe. The ftse 100,. 1 to the good. Stocks like bp and shell have had a big impact. The dax has been stopped by lufthansa. It is still exposed to the oil market when it comes to the fuel story, as a result of which it has suffered. The cac 40 as well. Only down. 1 . Already we are fading this risk off move we saw first thing this morning on the iraq iran news. Individual sectors tell the story as to why we are getting the differential around europe. The oil and gas sector far and away the biggest performer, up 1. 2 . Then we get into more defensive end of the market, the food and beverage sector, the real estate sector, the staples, telecom, health care, utilities, the defensive end of the market have been better beat and we have gone risk off. The bottom end of the market looks like this. The car sector is trading lower. That is germany. Chemicals, that is germany as well. Basic resources a little softer today, down 1. 1 . The oil stocks have compensated. Individual names, lets take a quick look. There is lufthansa down 6. 5 , down more earlier on. Bp adding the most weight to the london market on the upside. The temporary nature of the flavored vaping band in the United States has caught the attention of the tobacco sector. British American Tobacco is st